Financing with a down payment of less than 20%?? Learn about Private Mortgage Insurance.
If you are financing a home and making a down payment of less than 20%, you will generally be required to obtain private mortgage insurance (PMI).
PMI is a type of insurance that protects the lender in case the borrower defaults on the loan. It is typically required by lenders when the borrower makes a down payment of less than 20% of the home’s purchase price. The cost of PMI varies depending on the size of the down payment and the loan amount, but it typically ranges from 0.3% to 1.5% of the original loan amount per year.
The cost of PMI is typically added to the borrower’s monthly mortgage payment. However, in some cases, the borrower may be able to pay the cost of PMI upfront as a lump sum at closing, which can help reduce the monthly mortgage payment.
It’s important to note that PMI is not the same as homeowner’s insurance. Homeowner’s insurance protects the homeowner in case of damage to the property, while PMI protects the lender in case of default.
Once the borrower’s equity in the home reaches 20% (either through payments or appreciation), they may be able to request that the PMI be removed. The lender may require an appraisal to confirm the home’s value before removing the PMI.
