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What Is Private Mortgage Insurance?

Private mortgage insurance, also known as PMI, is a type of mortgage insurance you might need to pay for if you have a conventional loan. Like other types of mortgage insurance, PMI protects the lender if you stop making payments on your loan.

PMI is arranged by our lenders and provided by private insurance companies. PMI is usually required when you have a conventional loan and make a down payment of less than 20 percent of the home’s purchase price. Also, if you’re refinancing with a Conventional loan and your equity is less than 20 percent of the value of your home, PMI is usually required.

How do I pay for Private Mortgage Insurance PMI?

How do I pay for PMI?

There are several different ways to pay for Private Mortgage insurance (PMI).

A monthly premium added to your mortgage payment is the most common way to pay.

  • The premium is shown on your Loan Estimate and Closing Disclosure on page 1, in the Projected Payments section. You will get a loan estimate when you apply for a mortgage before agreeing to this mortgage.
  • The premium is also shown on your Closing Disclosure on page 1, in the Projected Payments section.

Sometimes you pay for Private Mortgage Insurance (PMI) with a one-time up-front premium paid at closing.

  • This Private Mortgage Insurance premium is shown on your Loan Estimate and Closing Disclosure on page 2, section B.
  • If you make an up-front payment and then move or refinance, you may not be entitled to a refund of the premium.

Sometimes you pay with both up-front and monthly premiums.

  • The up-front premium is shown on your Loan Estimate and Closing Disclosure on page 2, in section B.
  • The premium added to your monthly mortgage payment is shown on your Loan Estimate and Closing Disclosure on page 1, in the Projected Payments section.

What factors should I consider when choosing a loan that requires Private Mortgage Insurance?

What factors should I consider when choosing a loan that requires PMI?

Like other kinds of mortgage insurance, PMI can help you qualify for a loan that you might not otherwise be able to get. But, it may increase the cost of your loan. And it doesn’t protect you if you run into problems on your mortgage—it only protects the lender.

Lenders sometimes offer conventional loans with smaller down payments that do not require Private Mortgage Insurance. Usually, you will pay a higher interest rate for these loans. Paying a higher interest rate can be more or less expensive than PMI—it depends on several factors, including how long you plan to stay in the home. You may also want to ask a tax advisor whether paying more in interest or paying PMI might affect your taxes differently.

Borrowers making a low down payment may also want to consider other loans, such as an FHA loan. Different types of loans may be more or less expensive than a conventional loan with PMI, depending on your credit score, down payment amount, the particular lender, and general market conditions.

You may also consider saving up the money to make a 20 percent down payment. When you pay 20 percent down, PMI is not required with a conventional loan. You may also receive a lower interest rate with a 20 percent down payment.

Ask our lenders to show you detailed pricing for different options to see which option is the best deal.