Private Mortgage Insurance & Its Necessity in the Home Buying Process
Private mortgage insurance (PMI): What is it, and why should homeowners have it?
PMI can be defined as an insurance policy that homebuyers must take out and pay for when applying for a home loan; it essentially lets your lender know that you won’t default on your home loan.
Generally, this insurance will cost you somewhere between $30 to $70 on a monthly basis for every $100,000 that you’ve borrowed.
There is, however, an exemption for VA loans: Veterans applying for a VA loan need not purchase PMI, and are eligible to receive a 100% loan as well.
You can get creative with loan products sometimes, though—by applying for an 80% loan, you can add a second mortgage to cover another 10% and round up the rest through other means. There was a time when this mixing of products was fairly commonplace. Today the tradeoff between putting less than 20% down and purchasing PMI is virtually unavoidable.
But you’re not necessarily on the hook for long—once the loan is down to 80% of your home’s value, you can cancel this insurance altogether. Say you have a $200,000 home and the loan’s balance is $160,000. This means the loan accounts for 80% of your property’s value and, because of this, you’re now able to contact your lender and make a request to terminate your PMI policy.
The lender will send an appraiser out to confirm and, upon confirmation, they’ll remove that payment from the larger mortgage payment.
At any time, if you’d like to know your home’s value in today’s market, don’t hesitate to send me an email at Charlotte@CharlotteMabryTeam.com and I can give you a quick update. I’d be more than delighted to do so!