What is Private Mortgage Insurance (PMI)?

You may have noticed the term PMI when you’re doing home buying research. But what is it, why do you need it, and is there any way to avoid it?

What is it?

PMI is a monthly premium added onto your monthly mortgage payment. The annual premium can range between .5% and 1.5%. PMI is a way to protect a lender if you default on your home loan.

Why do I need PMI?

PMI insures the lender if you default on your mortgage loan. If you’re planning on buying a home but putting down less than 20%, you will need to pay PMI because your loan is higher-risk than others with larger down payments.

When could I stop paying PMI?

When you believe you’ve reached a loan to value (LTV) ratio of 80:20 based on the appraised value or purchase price, you can submit a written request to your financial institution to cancel your PMI. 80:20 means you hold 20% equity in the home.

Keep in mind there are requirements to process a written request to cancel PMI, and your request may not be approved. Some considerations include, but are not limited to:

  • Do I want to pay for a new appraisal, knowing my request may not be approved?
  • How long have I had my loan?
  • Have I made all my payments on time?
  • Did I reach 80% by making additional payments, or was it because home values in my neighborhood went up?

How can I avoid PMI?

You can avoid PMI by putting down 20% or more on a conventional loan to purchase a home. Because everyone’s needs are different when it comes to home buying and a down payment, it’s important to speak to an expert who can guide you through the process.

Have more questions about PMI or the home buying process? Contact one of our mortgage loan officers >

 

 

 

 

Security Service Federal Credit Union is an Equal Housing Lender. Membership eligibility required. The information contained in this site is provided for informational purposes only, and should not be construed as home buying advice on any subject matter. You should not act or refrain from acting on the basis of any content included in this site without seeking professional advice from a loan officer or other home loan expert.

◊ Image is for illustrative purposes only. Not an actual member.