What is PMI?
On a conventional mortgage, when your down payment is less than 20% of the purchase price, lenders usually require private mortgage insurance to protect them if you default. PMI companies insure roughly the top 20% of the loan. If a borrower defaults and the lender sells the home for less than what's owed, the insurer covers the shortfall up to the policy amount.
Can PMI help me qualify for a larger loan?
Yes. Because PMI reduces the lender's risk, it lets you buy with 5% or 10% down instead of 20%. For most families, that's the difference between buying now and waiting years to save. Put another way, a household that could afford a certain home with 20% down can often afford a noticeably more expensive one with PMI and a smaller down payment.
How much does PMI cost?
It varies with your credit score, down payment, and insurer, but a common range is 0.3% to 1.5% of the loan amount per year, paid monthly. A buyer with 5% down can expect to be near the higher end of that range. We'll quote your exact figure before you commit.
How is PMI paid?
- Monthly, as part of your regular mortgage payment (the most common option)
- As a single premium paid up front at closing
- As a lump sum financed into the loan amount
- Lender-paid PMI, where the lender covers it in exchange for a slightly higher rate
How do I apply for PMI?
You don't have to. The lender selects the insurer and arranges coverage as part of your loan approval.
When does PMI go away?
Under the Homeowners Protection Act of 1998, you can request cancellation once your loan balance reaches 80% of the home's original value (and you're current on payments), and the lender must automatically cancel it at 78%. If your home's value has risen, a new appraisal may let you remove PMI sooner. We're glad to help you check.