October 6, 2022 | Sexton Real Estate Group
Private mortgage insurance (PMI) is a type of insurance that you may be required to pay for if you’re not able to put down a 20% down payment when buying a home. It protects the lender in case you default on your loan. PMI can be expensive, so before you decide to get it, make sure you ask your lender these five important questions.
1. How Much Does PMI Cost?
When you’re buying a home, you’ll likely have to pay for private mortgage insurance (PMI) if you’re putting less than 20% down on the home. The cost of PMI depends on several factors, including the size of your down payment, the length of your loan, and your credit score. In general, the lower your down payment, the higher your premium will be. Your premium may also be higher if you have a shorter loan term or a lower credit score. To get an estimate of how much PMI will cost you, use an online calculator or talk to your lender. In most cases, you can cancel PMI once you’ve reached 20% equity in your home. So if you’re diligent about making payments and your home value goes up, you could save yourself some money in the long run.
2. How Long Will I Have To Pay PMI?
Most people are surprised to learn that they’ll likely have to pay PMI for at least two years. However, there are a few ways to get rid of it sooner. If you make certain improvements to your home (such as adding energy-efficient appliances), you may be able to cancel it sooner. You may also be able to get rid of PMI by refinancing your home once you’ve built up enough equity. In any case, it’s important to be aware of the timeline for paying PMI so that you can plan accordingly.
3. What Are The Risks Of Not Having PMI?
If you don’t have PMI, there are a few things that could happen if you default on your loan. The lender may foreclose on your home, which means that you’ll lose the property and any money you’ve put into it. In some cases, the lender may also sue you for the balance of the loan. If this happens, it could result in a judgment against you, wage garnishment, or even having your assets seized. As you can see, not having PMI can be a risky proposition. If you’re thinking about buying a home, be sure to talk to your lender about whether or not PMI is right for you.
4. Can I Get Rid Of PMI Early?
If you’re paying private mortgage insurance (PMI) on your home loan, you probably want to know how to get rid of it as soon as possible. After all, PMI is an extra expense that doesn’t make any sense if you have enough equity in your home. So what are your options?
Well, if you have an FHA loan, you can get rid of PMI after 11 years as long as your mortgage is less than 78% of the value of your home at the time you bought it. For conventional loans, you can request that PMI be canceled once you reach 80% equity in your home (meaning you’ve paid off 20% of the loan). In both cases, you’ll need to provide proof to your lender that you meet the requirements; this typically means ordering a new appraisal.
If you don’t want to wait that long or don’t think you’ll be able to reach 80% equity, there are a couple of other options. You can refinance into a loan without PMI, or you can make a larger down payment so that you can avoid PMI altogether. Of course, these options may not be feasible for everyone, so it’s important to weigh all of your choices before making a decision.
5. How Do I Know If I Need PMI?
If you’re not sure whether or not you need private mortgage insurance, the best thing to do is talk to your lender. They’ll be able to explain the requirements for getting rid of PMI and help you figure out if it’s right for you. In general, though, you’ll need PMI if you’re putting less than 20% down on a home. So if you’re thinking about buying a house, be sure to factor in the cost of PMI when you’re budgeting for your new home.
Private mortgage insurance can be expensive, so before deciding whether or not to get it, make sure to ask your lender about the cost, length of coverage, risks of going without it, and how to get rid of it early if possible. By doing your research ahead of time, you can make sure that getting PMI is the right decision for both your financial well-being and peace of mind.
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