Understanding the PMI | Siouxland Homes
First-time home buyers might be surprised to learn that your monthly mortgage payment is more than the amount owed on your home loan.
This is called the principal; the payment also includes interest, taxes and something else: private mortgage insurance, or PMI. Understanding how the PMI works is an important part of any home buying experience.
PMI is an additional fee that lenders attach to conventional loans as collateral. Created in 1998 by the Homeowner’s Protect Act, private mortgage insurance is designed to encourage banks to lend to those with lower down payments or fewer resources for mortgage payments, as it protects them against borrower default. . Lenders have less risk and buyers in turn have more choices when buying a new home.
The PMI is provided by individual outside companies and arranged by the lender you have chosen. It is generally required when you put down a down payment of less than 20% of the total purchase price of the house. PMI is also typically needed if you are refinancing with a conventional loan, but have less than 20% of your home’s equity in equity.
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Your PMI premium is most often paid as part of your regular monthly mortgage obligation. Details on this can be found under the final disclosure header in the scheduled payments section of your loan documents. Loan estimates distributed prior to signing the mortgage will detail the amount. However, some lenders offer different payment options, so ask if there are other choices available. For example, PMI can sometimes be paid as an upfront one-time bonus at your close. Just be aware that you may not receive a refund on this premium in some cases if you refinance or move.
Anyone who applies a down payment of more than 20% and agrees to carry a loan balance for the remainder can opt out of PMI coverage. People with PMI can sometimes set a termination date with their lender, after which the policy will be void, provided the mortgage payments have been made consistently. Recently, it has become more difficult to receive a PMI termination without some sort of refinance, so review your agreement before signing. You may also no longer need PMI coverage if the value of your home has increased significantly.