What is Private Mortgage Insurance (PMI)?
Private mortgage insurance (PMI) is a type of insurance that protects the lender in the event a borrower does not make their payments in a timely manner, resulting in loan default and ultimately foreclosure. On most loan programs, PMI is required if the loan-to-value ratio is greater than 80 percent.
Private mortgage insurance (PMI) is insurance written by a private company that protects the lender from losses in the event the borrower defaults on the mortgage. Borrowers are required to pay the premium for private mortgage insurance. Private mortgage insurance limits a lender’s exposure to financial loss resulting from loan default. If you make a down payment of less than 20%, even if you have a good credit profile, lenders generally require private mortgage insurance.
Lenders typically require borrowers to have at least a 20% equity position1 on conventional loans. Private mortgage insurance (PMI) allows borrowers to have a reduced down payment or lower equity in the property being financed. If you do not have 20% in equity or down payment, the lender will require private mortgage insurance (PMI). PMI insurance is paid by the borrower. The payment is included in the regular house payment. Advantages of PMI: The advantage to PMI is that it allows you to make a lower down payment than 20%. As a form of financial leveraging PMI may be a good investment vehicle. In other words, you may get a better rate of return on investments made with the money you could have used for a down payment. A second advantage is that you may purchase a larger home with a lower down payment. You can purchase a home with as little as 5% down using PMI. With $10,000 you could make a 5% down payment on a $200,000 home or put 20% down on a $50,000 home2. Additionally, you may be
Private Mortgage Insurance (PMI) is the insurance borrowers are required to pay if they have less than 20% (in some cases 25%) equity in their homes. This insurance protects the lender if the borrower defaults on the loan. The lender then uses the money collected from PMI to offset any losses. AFFINITY Mortgage Corporation will let you know if PMI is required for your loan.
