PMI, also known as Private Mortgage Insurance, is put into place to simply protect a lender in the event that a home buyer defaults on their mortgage.
From the mortgage lender’s perspective, PMI is necessary in order to protect their investment and in turn, keep their rates low. This ensures that a mortgage lender can safely do business with you.
When is a PMI payment needed?
A mortgage lender is often going to require a PMI payment if the borrower does not provide a 20% down payment on the home. If this is not possible, the loan becomes a riskier investment for the lender, therefore requiring private mortgage insurance.
How does PMI work?
Your PMI payment is paid monthly along with the overall mortgage payment to the lender. Once the principal amount increases over the years and the amount has passed the 20% threshold, a borrower may be able to contact their mortgage lender for a lower PMI payment or to have the payment removed.
How can I avoid a PMI payment?
If you are working with the Copeland Mortgage Team, you can avoid monthly PMI payments in 2 ways- by putting down 20% on your new home, or by being eligible for a VA loan.
If you aren’t eligible to avoid a monthly PMI payment in either of these ways, remember that after putting down the original 3.5% or more, you are building equity in your home each month and getting closer to reaching that 20% mark.
The benefit of a PMI is that becoming a homeowner is made easier by significantly lowering down payment requirements. Also, keep in mind that if you’re eligible for a VA loan, a down payment is not required.