Private Mortgage Insurance: Do I Need It?

Private mortgage insurance, or PMI, is a type of insurance that may be required by your lender when you are purchasing a new home in northern California. While it may not always be necessary, it will likely be up to your mortgage lender to decide if PMI is required.

Let’s take a look at some of the most frequently asked questions regarding PMI.

What is Private Mortgage Insurance?

As mentioned above, PMI is a type of insurance that helps protect lenders in the event that you default on your loan.

Who Does Private Mortgage Insurance Protect?

As a borrower, it is extremely important to understand that PMI is not homeowners insurance. It is put in place to help protect those lending money in case a borrower defaults.

How Much Does Private Mortgage Insurance Cost?

The cost of PMI will depend on a number of factors including the size of your down payment, the length of your loan, and your credit score. In general, the higher your credit score is, the lower your PMI premium will be.

When is Private Mortgage Insurance Necessary?

PMI is required for loans with a loan-to-value ratio of more than 80%, or in other words, the borrower is unable to put a 20% downpayment on their home loan. Your Preferred Lender can provide more details based on your specific situation.

How Do I Pay for Private Mortgage Insurance?

Before worrying about coming up with an additional monthly payment, you should know that there are actually a few different ways to finance your PMI. The most common way is to simply add the monthly insurance premium to your mortgage payment.

Some Preferred Lenders will also allow you to pay for your PMI up front in a lump sum or as part of your closing costs. This is often called single premium PMI.

The last way to finance your PMI is through what’s known as lender-paid mortgage insurance or LPMI. With this type of financing, the cost of your PMI is built into your interest rate, and you won’t have a separate monthly payment for mortgage insurance.

How Do I Get Private Mortgage Insurance?

If you are taking out a loan with a lender who requires PMI, they will likely have a list of approved mortgage insurance providers. You may be able to shop around for the best rate, but ultimately it will be up to your lender to choose the company that provides your insurance.

What’s the difference between PMI and Mortgage Protection Insurance?

It’s important not to confuse PMI with mortgage protection insurance. Mortgage protection insurance is a type of life insurance that will pay off your mortgage in the event of your death.

PMI, on the other hand, has nothing to do with life insurance. PMI is there to protect the lender should you default on your loan.

How Do I Get Rid of Private Mortgage Insurance?

Once you’ve built up enough equity in your home, you may be able to cancel your PMI. The amount of equity you need will depend on your lender, but it is typically around 20%.

You can also request that your lender remove your PMI once you’ve reached the midpoint of your loan term, such as the 10-year mark on a 30-year loan.

Final Thoughts on Private Mortgage Insurance

To sum it up, PMI is a type of insurance that may be required by your lender when you are purchasing a new home in northern California. It is important to understand that PMI is in place to protect the lender, not the borrower.

The cost of your PMI will depend on a number of factors, but in general, the higher your credit score is, the lower your monthly premium will be.

If you have any questions about private mortgage insurance or are interested in learning more about how it works, please don’t hesitate to contact us. We would be more than happy to help.