What is PMI (Private Mortgage Insurance)?Generally, if your mortgage down payment is less than 20% you will be required to carry mortgage insurance. This isn’t to be confused with homeowner's insurance, as they are two separate points of coverage protecting from two different events. The basis of it is that if a borrower were to stop payments on their mortgage, the insurance company would make sure that the lender is paid.
Will You Need Mortgage Insurance?If you are able to pay the full 20% down, you will not need mortgage insurance. One interesting aspect is that if you are required to purchase mortgage insurance when you first get your loan, you can often request to cancel it after a certain period of time, usually when your loan reaches a point that you have 20% equity in the property.
What Types of Mortgage Insurance Are Available?There are commonly two types of mortgage insurance available, private and public. If you get private mortgage insurance, it means you have a conventional loan and that the insurance is obtained through a PMI company. If you have public mortgage insurance, it means that your insurance is bought from the government and is usually paired with a government loan, such as FHA. The mortgage insurance that you will be required to obtain will depend on the type of loan that you are choosing, but we can help you with this as we progress through your loan process.
How Long Do I Have to Keep the PMI?As a general rule, you usually pay the insurance premiums until your loan-to-value (LTV) ratio hits 80%. The LTV is essentially the amount of money that you borrowed and then divided by the value of the property you bought. You can often cancel the mortgage insurance policy when you have 20% of the home’s equity built up!
How Much Does PMI Cost?The premiums for a conventional loan can vary, but a good rule of thumb is that the lower your down payment, and/or the lower your credit score, the higher your premium will be. Generally, the premiums can range from $30-$70 per month for every $100,000 borrowed. However, on FHA loans, there are some additional fees. There is a UFMIP (up front mortgage insurance premium) as well as an annual premium that will be collected monthly. For VA loans, you will have an upfront fee, but no annual or monthly premiums, unless you are exempt from the funding fee.
It's a Great Time to BuyIf you have further questions about this, we invite you to fill out the application for a loan on our website (www.YourLakeLoan.com), and we can talk with you further about the details that are specific to you! We look forward to discussing your options when it comes to your financing needs, and we’re committed to working with you every step of the way.
For Lake area news, resources and tips on financial services, please
Senior Loan Officer
NMLS #: 493712
4655 B Osage Beach Parkway
Osage Beach, MO 65065
**The postings on this site are my own and do not necessarily represent First State Bank of St Charles’s positions, strategies, or opinions.