PMI or Private Mortgage Insurance is basically a lenders insurance policy!
For many homebuyers, their down payment amount is a significant sum and with the minimum down payment requirements going up (we’ll expound more in an upcoming post) many homebuyers need to know and budget for PMI!
Why do I need to pay PMI?
If your down payment on a home is less than 20%, you’re going to be required by your lender to have PMI or mortgage insurance. This insurance policy essentially protects the lender in the event you default on your loan obligation!
When you take a loan to buy a home you not only do you pay the principal but you need to budget for the interest, taxes and yes the insurance…not just homeowners insurance but the Mortgage insurance too!
Is there more than one kind of PMI?
Not only is there Private Mortgage Insurance but there is Government Mortgage Insurance as well that is mainly done through the FHA! If you get an FHA loan and put down less than 20%, you will almost certainly experience this type of Mortgage Insurance. The Private type of Mortgage Insurance can be found through multiple corporations so be sure to have that conversation with your lender before you get too far in the loan process!
How much will I pay for PMI?
Like most things, the cost and the amount you’ll pay for PMI can vary. This again, is a great conversation to have with your lender.
In general, the amount you pay for PMI will depend on a number of factors:
- Amount of your down payment
- Amount of your loan
- The type of loan you have
Also, be sure to understand the tax deductions implications associated with PMI. Ask your financial advisor how you can claim your PMI on your tax returns!
What does PMI look like?
Here is an easy breakdown for you:
Loan Amount = $175,000
Down Payment = 10%
Amount Borrowed = $157,500
PMI Premium = 0.49%
$157,500 X 0.0049% = $771.75
Divide $771.75 by 12 monthly payments and your PMI will be $64.31 each month!
I hope you found this information helpful. If you have any additional questions about PMI or any part of the loan process, please feel free to contact me at the resources below!
I am passionate about Real Estate and eager to answer all of your real estate questions! Text or Call me at 360-880-2356 or email me directly to ask about Buying, Selling or Investing in today's Real Estate Market - serving Lewis County & Thurston County, WA.
Certified Residential Specialist | Real
Mountain Valley Real Estate