Why Does PMI Exist?
Mortgage lenders face greater risk when a buyer contributes less equity.
PMI helps offset part of that risk.
In exchange, buyers may be able to purchase without waiting to save a 20% down payment.
Is PMI the Same as Homeowners Insurance?
No.
PMI
Protects lender/investor risk.
Homeowners Insurance
Protects against specified property/liability losses.
How Is PMI Paid?
Depending on the loan, PMI may be:
- Monthly
- Paid upfront
- Structured differently through lender pricing
Ask the lender how your particular policy is charged.
What Determines PMI Cost?
Fannie Mae currently notes factors such as:
- Loan type
- Credit profile
- Down payment/equity
- Loan structure and term
can affect PMI cost.
Lender/insurer pricing also plays a role, so ask your lender for a current quote.
Can PMI Be Removed?
Potentially.
Federal law and loan/investor rules provide cancellation/termination structures for qualifying conventional PMI.
The exact process depends on:
- Loan history
- Loan-to-value
- Original value/current value rules
- Payment history
- Investor/servicer requirements
Do not confuse conventional PMI removal with FHA MIP rules.
See Can PMI Be Removed? for the full explanation.
Should You Avoid PMI at All Costs?
Not necessarily.
Suppose you are trying to decide: wait and save a larger down payment, or buy now with PMI?
During those years of waiting:
- Home prices might change
- Rent continues
- Interest rates might change
- Life circumstances may change
PMI is a cost, but waiting also has a cost.
Compare the whole scenario.
How Lisa Helps
PMI decisions are financing decisions, so the lender leads. Lisa helps you evaluate the property and overall position: what you would pay in rent while waiting, what the target home could cost later, and whether the purchase timing works for your life.
A free Property DNA report on a home you are considering can help you compare the property, while the lender models the PMI line.
