If you need help choosing the right mortgage and understanding the basics about your mortgage options, the team at Better Rate Mortgage is here for you.
PMI (Private Mortgage Insurance) can be useful for homeowners who can’t put down a 20% down payment but still want to purchase a home. But we know PMI can be a bit confusing, and most homeowners want to get rid of it as soon as they can. So in this blog, we’ll discuss the basics of PMI, why you may need it, and how to get rid of it once you’ve purchased your home.
What Is PMI and Why Would I Need It?
PMI, as mentioned above, is short for Private Mortgage Insurance. It may be required to take out a conventional loan and make a down payment of less than 20% of the home’s purchase price.
Basically, this is a type of mortgage insurance that protects your lender. If you fail to pay your mortgage (default), PMI will compensate your lender up to an agreed-upon amount. This helps them reduce the risk of lending to you, even if you can’t pay 20% as a down payment.
However, you pay the cost of this insurance, even though it compensates your lender. Usually, you’ll pay for PMI as a monthly payment that’s added to your mortgage payment. You may pay up to 2% of the loan value per year in PMI, though rates can be lower than this.
PMI Is Not Always Required If You Can’t Make a 20% Down Payment
If you can’t make a 20% down payment but want to avoid PMI, you have other options. FHA loans, for example, may allow you to buy a home with just a 3.5% down payment. VA loans for veterans do not require any down payments at all.
So if you can’t put down 20% and would like to avoid PMI, we recommend contacting the pros at Sean Zalmanoff – Better Rate Mortgage. We’ll help you explore all of your options to find the loan that’s the best for your own unique situation and your finances.
How Do I Get Rid of PMI?
If you are paying PMI because you didn’t make a big enough down payment, there’s only one way to get rid of it – reach 20% equity in your home.
Your PMI may stop automatically, but you can also send a written request to the insurance company as soon as you reach 20% equity to get them to cancel the policy. Refinancing will also let you drop PMI as long as the new loan balance is less than 80% of the home’s value.
Contact Sean Zalmanoff and Better Rate Mortgage To Learn More About Your Options
Buying a home is one of the biggest investments you’ll make in your life, so don’t go it alone. If you need help choosing the right mortgage and understanding the basics about your mortgage options, the team at Better Rate Mortgage is here for you. Contact us online to schedule a consultation in St. Louis today.