Before buying a house, one of the first steps to take is discussing financing options with your home loan provider. There are various options available, so it's important to weigh the pros and cons of each. One of these is private mortgage insurance, or PMI. Here, Bogle Realty of Centerville, IA, explains the basics to assist you in making a more informed decision about home loan products.
What You Need to Know About PMI
What Is It?
PMI is a form of insurance for the lender in case the home loan goes into default. Lenders consider loans with less than 20% equity to be a risky investment. To offset this, they require any homebuyers with smaller down payments to participate in PMI.
Why Is PMI a Good Thing?
Many people who want to purchase a home do not have 20% saved for the down payment. Though there is a fee for putting less than 20% down, the PMI structure helps many people purchase a home they can afford without wiping out their savings.
How Much Is It?
PMI is calculated based on your credit score and the amount of your down payment. The more money you put down and the better your credit score is, the smaller the PMI. The fee ranges from 0.3% to 1.5% of the original home loan balance each year. Though you will need to discuss the actual amount with your lender, the average is around 0.5%.
Do I Have to Pay PMI Permanently?
No! PMI will be automatically included as part of your home loan payment each month. Your lender is required to eliminate that portion of your payment once your principal balance reaches 78% of the original note. However, if you carefully monitor your monthly payments, you can request your lender drop PMI when you reach an 80% loan-to-value ratio.
Bogle Realty is staffed by experienced real estate brokers who work with many buyers to help them fulfill their dreams of becoming homeowners. Buyers and sellers throughout southeastern Iowa consider them a trusted source for their real estate needs. If you're considering buying a house or want more information on home loans, contact them at (641) 437-4663. You can see available properties online.