There’s so much to know when it comes to buying your first home – should you go with a 30-year fixed or an adjustable rate mortgage? Should you put down 3% or wait until you save the 20% for a down payment? While most experts would advise against waiting, if you qualify for a lower down payment mortgage you’re likely to run into a strange term —Private Mortgage Insurance, or PMI.
Here the 8 Top FAQ’s about PMI:
What is PMI? Private mortgage insurance protects the lender if you stop making mortgage payments.
- What are the different types?
Mortgage insurance premiums (MIP) for government loans.
Private mortgage insurance (PMI) for conventional loans.
- Who needs PMI? FHA borrowers and anyone putting down less than 20%.
- How much does it cost? Your rate will depend on you credit score, the amount of downpayment and the insurer. A typical premium ranges from $30-$70/month for every $100k borrowed.
- When do I pay PMI premiums? Monthly with mortgage payments or as a lump sum at closing.
- Why do I need a policy? To buy a home without waiting to save 20% for a downpayment.
- How long do I needs PMI? Until you have a 20% equity stake in the property for a conventional loan. Forever for an FHA loan.
- Can I avoid paying PMI? Yes. By putting down 20% or more, or ask your lender about portfolio loans that do not require PMI.
- When does mortgage insurance “fall off” the loan? It doesn’t. You have to contact your lender. Once 20% equity has been built, you can request to cancel PMI.
To help shed some light on the world of Private Mortgage Insurance, the Zillow Group has created this helpful infographic to break down the most frequently asked questions about PMI.
Source: (www.gateless.com; https://www.gateless.com/articles/sell-more/the-top-8-faqs-about-private-mortgage-insurance?utm_source=090316saturday&utm_medium=email&utm_content=module3&utm_campaign=questions-about-PMI)