As a real estate agent in Locust Grove, I’ve worked with individuals funding the purchases of homes in many different ways.  One of the most popular methods is through a mortgage.  There are many different loan programs available to buyers, but all loan programs have different requirements that must be met in order to acquire the mortgage.  For some buyers, this might include paying for private mortgage insurance.

What is private mortgage insurance?

Private mortgage insurance, sometimes called PMI,  is a type of insurance arranged by the lender that protects the lender if the buyer stops making payments on the loan.  It does not offer any protections to a buyer who is unable to make the monthly mortgage payments.  The buyer pays for this insurance as a requirement for obtaining the loan.  It is often included within the monthly mortgage payment. Some lenders offer alternative payment methods, but paying for the private mortgage insurance monthly is typically the option that most buyers opt to do.  

Who needs private mortgage insurance?

Typically, a buyer purchasing a home in Locust Grove (or elsewhere) using a conventional loan and making less than a twenty percent down payment (Learn more about the costs associated with buying a home) is required to purchase private mortgage insurance. If the down payment is twenty percent of the offer price or higher, then no PMI is required.

How much will my private mortgage insurance be?

As a real estate agent in Locust Grove, I can’t tell you what exactly how much PMI will be. The cost of the insurance is dependent on the amount of the loan, how much you are putting down, your credit score, and whether you are getting a fixed or adjustable rate mortgage.  Your lender can calculate the exact number and will share this information with you.

Will we pay private mortgage insurance for the entirety of the loan?

No buyers don’t have to pay for private mortgage insurance for the entirety of the loan.  Buyers can request that the PMI is dropped once the LTV ratio reaches eighty percent; in this case, the buyer will need to make a request in writing and may need to provide documentation like an appraisal to the lender.  Federal law requires that the lender must automatically end private mortgage insurance when the loan to value ratio of your mortgage reaches seventy eight percent or when the buyer is one month past the midpoint of the loan term.  

So while PMI is an additional monthly cost, it will not last for the entire time the mortgage is in place.

How can I avoid paying private mortgage insurance?

The best way to avoid paying PMI is to make a down payment that is more than twenty percent when using a conventional loan.  Buyers may also qualify for other loan programs to avoid paying the private mortgage insurance.  In order to determine your eligibility for these programs, it is important to talk with your lender.

Sometimes paying for PMI to get a conventional loan balances out in the long term when considering the interest rate of a conventional loan in comparison to other programs. As a buyer, it is worth taking the time to compare all your loan options. Talk through these options with you lender and sharing how long you plan to stay in the home can help you determine the best mortgage program for you.

Whenever you are ready to start a home search, I am here to help! As a real estate agent in Locust Grove, (and the surrounding area) my expertise, knowledge, and skills will help make your home search successful! Let me know when you are ready to begin!