PMI...What is It?

By
Real Estate Agent with Keller Williams Realty - Topsfield, MA 92593

Private Mortgage Insurance (PMI) is required if the buyer has less than a 20% downpayment. It protects the BANK from losing money when a homeowner stops paying the monthly mortgage payments and goes into foreclosure.

Depending on the whims of Congress, PMI payments are sometimes deductible. Check with your tax professional. 

Note: If you are a veteran and securing a VA mortgage there is no PMI

 

Get All the Facts about PMI

Get All the Facts about PMI | Keeping Current Matters

When it comes to buying a home, whether it is your first time or your fifth, it is always important to know all the facts. With the large number of mortgage programs available that allow buyers to purchase a home with a down payment below 20%, you can never have too much information about Private Mortgage Insurance (PMI).

What is PMI?

Freddie Mac defines PMI as:

“An insurance policy that protects the lender if you are unable to pay your mortgage. It's a monthly fee, rolled into your mortgage payment, that is required for all conforming, conventional loans that have down payments less than 20%.

Once you've built equity of 20% in your home, you can cancel your PMI and remove that expense from your mortgage payment.”

As the borrower, you pay the monthly premiums for the insurance policy, and the lender is the beneficiary. Freddie Mac goes on to explain that:

“The cost of PMI varies based on your loan-to-value ratio – the amount you owe on your mortgage compared to its value – and credit score, but you can expect to pay between $30 and $70 per month for every $100,000 borrowed.” 

According to the National Association of Realtors, the average down payment for all buyers last year was 10%. For first-time buyers, that number dropped to 6%, while repeat buyers put down 14% (no doubt aided by the sale of their home). This just goes to show that for a large number of buyers last year, PMI did not stop them from buying their dream homes.

Here’s an example of the cost of a mortgage on a $200,000 home with a 5% down payment & PMI, compared to a 20% down payment without PMI:

Get All the Facts about PMI | Keeping Current Matters

The larger the down payment you can make, the lower your monthly housing cost will be, but Freddie Mac urges you to remember:

“It's no doubt an added cost, but it's enabling you to buy now and begin building equity versus waiting 5 to 10 years to build enough savings for a 20% down payment.”

Bottom Line

If you have questions about whether you should buy now or wait until you’ve saved a larger down payment, meet with a professional in your area who can explain your market’s conditions and help you make the best decision for you and your family.

Posted by

I pray that God our Father and the Lord Jesus Christ will be kind to you and bless you with peace

2 Thessalonians 1:2

 

Doug Dawes REALTOR®

Broker Associate

KELLER WILLIAMS REALTY 

11 South Main Street
Topsfield, MA 01983
 978-887-3995  ~ Office
 978-270-3037  ~ Cell
 DougDawes@KW.com

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Ambassador
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Ralph Gorgoglione
Maui Life Homes / Metro Life Homes - Kihei, HI
Hawaii and California Real Estate (800) 591-6121

That's a great chart you have up there that shows the dramatic difference.  It's so unfortunate that some people need money to avoid paying more money.  Are there any special programs for no PMI with less than 20% down?

May 10, 2017 08:49 AM #1
Rainmaker
440,166
Doug Dawes
Keller Williams Realty - Topsfield, MA - Georgetown, MA
Your Personal Realtor®

Each state may have mortgage programs AND as a veteran taking a VA mortgage there would be no PMI Ralph Gorgoglione 

May 10, 2017 08:53 AM #2
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Jeff Dowler
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude - Carlsbad

Good information, Doug, for those who may not be aware. A discussion with your lender is always a good idea, too!

Jeff

May 10, 2017 08:59 AM #3
Rainmaker
440,166
Doug Dawes
Keller Williams Realty - Topsfield, MA - Georgetown, MA
Your Personal Realtor®

Hi Jeff Dowler 

Absolutely these matters need to be discussed with the lender.

May 10, 2017 05:40 PM #4
Rainmaker
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Joan Cox
Metro Brokers - House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Doug, great information, as many buyers want to know exactly what it is!  

May 11, 2017 04:19 PM #5
Rainmaker
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Doug Dawes
Keller Williams Realty - Topsfield, MA - Georgetown, MA
Your Personal Realtor®

Hi Joan Cox 

Many times buyers are surprised by PMI

May 12, 2017 03:43 AM #6
Rainmaker
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Roy Kelley
Realty Group Referrals - Gaithersburg, MD
Roy and Dolores Kelley Photographs

This is very good information to share with prospective mortgage borrowers.

May 13, 2017 05:37 AM #7
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Doug Dawes

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