PMI is Private Mortgage Insurance. Most people that apply for a loan will plan on paying PMI. PMI is required for anyone that is getting a loan on a property and does not have a 20% down payment. PMI is not a set amount. It varies depending on the borrower’s credit score and the amount of money they are putting down on the property. The rates range from .03%-1.5% of the original loan amount, and the payments are divided up over the 12 loan payments made throughout the year.
PMI benefits the borrower by helping them get in to a property without having to have a large down payment. This is a big advantage in today’s market, as trying to save for a 20% down payment while the prices of homes continue to increase at a rapid pace could have you chasing prices for awhile. Some PMI companies may even offer job loss insurance coverage, which is something that is not publicized.
There are several options available to get rid of PMI as well. The first option is to refinance your loan. If you have 20% equity in your property, you can get rid of the PMI payment. Another way is to just pay for a new appraisal. An appraisal will cost between $400- $600 out of pocket but can save you on a PMI payment every month. The 20% rule still holds true with this option. If your home has 20% equity in it, you can have your lender cancel your PMI. Another way to get rid of PMI is to improve or add on to your property to where it gives you 20% equity. To cancel your PMI, it must be done in writing, and you may have to prove you do not have any other liens on the property (for example a HELOC). You will also have to be current on your payments and have a good payment history.
PMI serves a big purpose in real estate by helping people without a lot of money get into homes. Talk to your lender about what benefits you have with your PMI. With an understanding of what PMI is and the purpose it serves, you will see that PMI is not so bad.