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Three Ways PMI Helps Make Homeownership Possible

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If you’re a first-time homebuyer, you’ve likely heard about private mortgage insurance, or PMI. Here’s a quick breakdown of what PMI is and how it can help you become a homeowner sooner.

 

What is Private Mortgage Insurance?

PMI is an insurance policy that reduces risk for lenders, enabling them to offer loans with smaller down payments. Instead of requiring 20% down, PMI allows buyers to put down as little as 3%, making homeownership more accessible, especially when saving for a large down payment can be challenging.

 

Advantages of PMI for Borrowers

While PMI primarily protects the lender, it can benefit you in three major ways:

  1. Buy a House Sooner
    With PMI, you don’t need to wait until you’ve saved 20% to buy a home. For example, instead of saving $70,000 for a 20% down payment on a $350,000 house, a 3% down payment would be just $10,500, letting you move in sooner.
  2. Afford More Home
    Even with savings, PMI can help you buy a pricier home. For instance, if you have $30,000 saved, a 20% down payment limits you to homes around $150,000. With PMI, you could put down 10% on a $300,000 home instead, potentially finding something that better meets your needs.
  3. Keep Cash on Hand
    PMI allows you to put down less, freeing up funds for other needs—like home repairs, furnishings, or an emergency fund. This flexibility can be especially helpful as you settle into homeownership.

 

PMI: A Strategy for Financial Flexibility

Many buyers are able to purchase homes sooner thanks to PMI. In fact, nearly 39 million people in the U.S. have used PMI to achieve homeownership. If you’re considering PMI, talk with your loan officer to see if it’s a good fit for your goals.

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How to Remove Private Mortgage Insurance (PMI)

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If you’re in the market for a new home, you’ve likely heard the term Private Mortgage Insurance or PMI. Do you know what it is? And more importantly, how to remove PMI from your mortgage?

We’re here to help.

What is PMI?

From Freddie Mac: For homeowners who put less than 20% down, Private Mortgage Insurance or PMI is an added insurance policy for homeowners that protects the lender if you are unable to pay your mortgage.

It is not the same thing as homeowner’s insurance. It’s a monthly fee, rolled into your mortgage payment, that’s required if you make a down payment less than 20%. While PMI is an initial added cost, it enables you to buy now and begin building equity versus waiting five to 10 years to build enough savings for a 20% down payment.

While the amount you pay for PMI can vary, you can expect to pay approximately between $30 and $70 per month for every $100,000 borrowed.

How can you remove PMI?

Private Mortgage Insurance can be removed from your mortgage under the following circumstances.

  1. You put down 20% (or more) when you purchase your home.
  2. If you plan to stay in the home for many years, ask your Loan Officer about paying for PMI upfront instead of monthly.
  3. PMI is automatically removed by your mortgage loan servicer when your balance reaches 78% of the original purchase price.
  4. Refinance your mortgage when you have 20% equity in the home and PMI will be removed.

Veterans and Active-Duty Service Members who purchase a home with a VA Loan will not be charged PMI (no matter how much money they put down).

When meeting with your Loan Officer, ask which option is best for you. They will help guide you in the right direction.

If you have additional questions about PMI, or the mortgage process in general, give us a call.