Private Mortgage Insurance, or PMI, is an insurance that may be required to get a conventional home loan with a smaller down payment. PMI protects the lender if you default on your mortgage payments. As the borrower of the loan, you pay the premium and the lender is the beneficiary.
Why Would I Need Private Mortgage Insurance?
PMI may be required if your down payment is less than 20% or during a refinance if there is less than 20% equity in the home. PMI may give you a chance at being approved for a loan that you may not be approved or otherwise. The insurance policy does not protect you, but protects the lender if there is a failure to pay.
Can You Avoid PMI?
PMI may help get your home loan if you cannot put down 20% and keep you from paying a higher interest rate. If there is no other loan option for you, such as a FHA, VA or other loan type then you may not be able to avoid having PMI. However, you may be able to have PMI removed once you reach a certain percentage of equity on your home.
If you can save a bit longer and put down a 20% down payment, this will be beneficial to you. PMI may add more to your monthly mortgage costs but help get you approved and into home ownership quicker than saving for a larger down payment.
Your mortgage professional at First Ohio Home Finance will give you detailed options and help you make the best decision for your finances.