Private Mortgage Insurance
Private Mortgage Insurance, also known as PMI, is a supplemental insurance policy you may be required to obtain allowing you to get a conventional mortgage loan with less than 20% down payment. PMI is provided by private (non-government) companies and is usually required when your loan-to-value ratio — the amount of your mortgage loan is greater than 80 percent of the price on a purchase.
SURPRISE...PMI IS NOT A BAD THING FOLKS
It allows you to make a lower down payment, generally as low as 5 percent of the purchase price or value...whichever is less and still qualify for a mortgage loan. In fact without PMI, historically many potential conventional buyers would not be able to purchase that first home without 20% down. Obviously, coming up with 20% down can be a major road block for a first time buyer. We can finally lose the ill conceived notion espoused by national media that you need 20% down to buy a home. PMI is a very useful tool in our home ownership tool kit.
How is PMI calculated?
Your PMI premium is fixed based on plan type (loan-to-value ratio, loan type, loan term, credit score, etc.). PMI typically amounts to +/- about one-half of one percent of your mortgage amount annually, according to the Mortgage Bankers Association, and the premium which is a non-interest bearing payment is usually added to your monthly mortgage payment total to your lender. The more you can put down on the home and the higher your credit score, the lower the PMI factor can be. On a $200,000 mortgage with a 720 credit score you may be paying $1,460 per year or $121.67 per month in this example for PMI. The alternative might be having to put 20% or $40,000 down at closing. Thank goodness for the PMI option, right? This does not even factor in the own vs. rent advantages such as appreciation or tax deductibility.
Feel free to give us a call at 407-647-4440 to discuss your various options and let us help you make the decision that works best for you.