Pay Attention to PMI
Pay Attention to PMI
If you’re getting a conventional home loan, be sure to ask about private mortgage insurance. If you have less than a 20% down payment, PMI is required in order to protect your lender should you default on your home loan. PMI does not apply to FHA or USDA home loans.
“Your credit score and down payment amount typically determine how much you pay each month in PMI, in addition to your principal and interest,” said Alea Simmons, a Residential Loan Officer with Southwest Georgia Farm Credit Home Loans. “For FHA or USDA loans, MIP, or Mortgage Insurance Premiums, are included in your monthly payment.”
It’s important to note that PMI is not the same as homeowner’s insurance. PMI is insurance for your lender, that allows you to buy now and begin building equity rather than waiting to accumulate a 20% down payment. The amount you pay in PMI can vary, but a good rule of thumb is that you should expect to pay between $30 and $70 per month for every $100,000 borrowed.
“In cases where PMI is required, a borrower should outweigh the benefits of paying a larger down payment with the requirement to pay for PMI,” said Alea Simmons, a Residential Loan Originator and home loan expert with Southwest Georgia Farm Credit Home Loans. “It’s important to understand up-front if you’ll be paying PMI because you’ll need to figure this amount into the cost of your monthly mortgage.” Alea pointed out that you’ll see the premium on your loan estimate and closing disclosure mortgage documents in the “projected payments” section.
“Sometimes people confuse mortgage insurance with homeowners insurance, Alea said. “Homeowners insurance protects you in case your property is damaged. Mortgage insurance helps you get financing with a smaller down payment.”
What is Lender-Paid PMI and is it a good idea?
LPMI describes when your lender pays for your mortgage insurance. Typically, this is in the form of a monthly premium tacked onto your monthly mortgage payment. In essence, you’ll pay a higher interest rate instead of a higher monthly mortgage payment
Can you avoid PMI? Absolutely! Here’s how:
- Make a down payment of at least 20%.
- The only loan without true mortgage insurance is a VA loan. These loans have a one-time funding fee that is either paid at closing or built into the loan amount. VA loans do have a one-time funding fee that’s either paid at closing or built into the loan amount. If you receive VA disability or are a qualified surviving spouse of someone killed in action or passed as a result of a service-connected disability, the funding fee is not required.
Talk with your lender about how much they anticipate PMI will be based on your loan amount and other factors. You can get pre-approved today and understand exactly how much home you can afford!
OUR EXPERT TEAM
Need help getting started? Southwest Georgia Farm Credit Home Loans has the experts ready to get you pre-qualified and started on your home-buying journey today. Call 229-493-0921 or Apply Online!