If you’ve already spoken with a lender about buying a home, the subject of private mortgage insurance, or PMI, may have come up. If you’re like many people, you may not be clear on what PMI is, whom it protects or why people use it.
Does Private Mortgage Insurance Help You Qualify for a Mortgage?
The primary benefit of carrying PMI on a mortgage is that it reduces the lender’s risk. In some cases, that means you can get a conventional loan you might not otherwise qualify for.
PMI protects your lender, not you, if you stop making payments on the loan.
Smaller Down Payment? You’ll Pay for Private Mortgage Insurance
Because the lender has some protection in the event you’re unable to pay, you could be able to get financing for more than 80 percent of the selling price. That means you could put down less than 20 percent on a conventional mortgage without paying a higher interest rate. This can be a great benefit to anyone receiving a steady income but who has little money saved for a down payment.
Remember, there are several other options for those who don’t have much saved for a down payment; you should explore every avenue to find out where you can save the most money. Your options may include using a VA loan, getting an FHA loan or using the Freddie Mac Home Possible Advantage mortgage loan program.
How Do People Pay for PMI?
In most cases, borrowers pay a monthly premium for private mortgage insurance. The fee is usually rolled into a mortgage payment.
Some lenders ask their customers to pay for PMI with a one-time premium that’s payable at closing.
In either case, your loan estimate will display the premium so you know exactly how much you’re paying. If your lender doesn’t provide you with the points translated into dollar values, don’t be afraid to ask!
Be sure to discuss your options regarding private mortgage insurance with several lenders as you shop for the best mortgage. Also, ask the lender about their cancellation policy for PMI. You have a right to cancel this policy (and stop paying the monthly premium) once you’ve accumulated a certain amount of equity.
Are You Buying a Home in the Tampa Bay Area?
Call us at 727-584-8480 or 813-961-6000, or get in touch with us online. We’ll be glad to help you find your next home.