What is Private Mortgage Insurance and how can you avoid it?
When purchasing a home, there are many different costs to factor into a budget. While many people are aware of expenses like taxes and the cost of making repairs, there are some costs that people don’t think about, such as Private Mortgage Insurance (PMI).
Why is PMI Required?
Private Mortgage Insurance is generally required by lenders when a borrower is putting a low amount down on the home. When a borrower puts less money down on a home, the risk is higher, so lenders will require the insurance to protect themselves in case of a mortgage default.
Will PMI Ever Go Away?
With a conventional loan, PMI can be canceled when your equity rises above a certain point. This happens when mortgage payments are made or a home’s value appreciates.
If you’re eligible to cancel PMI, your lender will want to schedule an appraisal to ensure that your equity is what it needs to be.
With an FHA loan, you may be eligible to cancel PMI when you pay your mortgage down to a certain percentage of the original sales price. The appreciation of the home’s value doesn’t matter.
If you’d like to know whether you can cancel your PMI, speak with your mortgage lender.
Can PMI Be Avoided?
There are different ways in which paying for PMI can be avoided, though not everyone will qualify for them. You may not have to pay PMI if you put a larger amount down on a home or, in some situations, are willing to pay a higher interest rate. There are also mortgage options that do not require PMI, like VA loans. Our partner, Mortgage Center, offers several mortgages including the PMI Saver, which allows borrowers to avoid PMI with a smaller down payment.
If you have questions about PMI, including whether your PMI can be canceled, speak with your mortgage lender. Speak with our mortgage expert today by calling 586.756.3300 or start your application here.
Information as of February 2019.
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