Private mortgage insurance (PMI) is a type of insurance that is often required of conventional mortgage loan borrowers. When you buy a home and make a down payment of less than 20% of the home's purchase price, the PMI may be part of your mortgage payment. This insurance protects your lender if you stop making your loan payments. As a general rule, most lenders require a PMI for conventional mortgages with a down payment of less than 20%.
However, there are exceptions to this rule, so it is important to research your options if you want to avoid PMI.When looking for a home, ask your lender how they manage mortgage insurance and how much you could expect to pay in PMI, or another type of mortgage insurance. Your credit rating won't affect the insurance rate on FHA loans, although it could be higher if you deposit less than 5 percent. Freddie Mac doesn't automatically cancel mortgage insurance for multi-unit residences or investment properties.Your lender will also consider a few other factors when determining how much of the PMI you will have to pay as part of your regular mortgage payment. If you are up to date with your mortgage payments, the PMI will be automatically canceled on the date your principal balance reaches 78% of the original appraised value of your home.
Instead of mortgage insurance, VA loans have a single funding fee that is paid at closing or included in the loan amount.Private mortgage insurance (PMI) adds to your monthly mortgage expenses, but it can help you get started with homeownership. For homeowners who make a down payment of less than 20%, private mortgage insurance or PMI is an additional insurance policy for homeowners that protects the lender if you can't pay your mortgage. If you have low credit ratings, your loan agent may suggest a loan backed by the Federal Housing Administration (FHA) because, unlike PMI premiums, FHA mortgage insurance premiums aren't affected by your credit rating.
