What is PMI and what does it do? PMI is extra money that you pay for the lenders benefit. Private Mortgage Insurance protects the lender in case of mortgage default and the home goes into foreclosure. Lenders require PMI when the loan amount is greater than 80% of the value of the home. Depending on the percentages of down payment, credit scores, and debt ratios, the PMI amount can vary. PMI is usually paid by the borrower monthly with the mortgage payment. Lenders also offer lender-paid MI but the interest rates can be higher to cover the monthly mortgage insurance payment.
If you have a monthly PMI, you can request the MI to be removed once the outstanding loan balance reaches 78% of the original purchase price. Refinancing the loan after a home appreciates is another way to remove the PMI if the remaining outstanding balance is 80% or lower than the current market value of the home.
There are ways to avoid paying PMI even with a small down payment. For instance a borrower can obtain a smaller piggyback loan to cover the shortfall of a down payment in order to keep the primary mortgage at 80% or less of the home value.
If you would like to know how avoid paying PMI, or how much PMI will be, contact me today at 925-216-3618 to find out more information.