When you’re looking into the costs of buying a home, you’re likely familiar with the interest rate, downpayment, and even closing costs. But how familiar are you with the PMI that might be included in your monthly payment?
If you’re curious about what PMI is and whether or not you’ll have to pay for it, here’s a little explanation.
PMI stands for private mortgage insurance, which protects the mortgage lender if you stop making payments on the loan. If you put less than 20% of your own money into the transaction, the Credit Union or lender will get PMI on the loan. If you’re able to put 20% or more down, you won’t have to pay PMI at all.
PMI is most often factored right into your mortgage payments which means you don’t have to make it a separate payment each month on top of your mortgage. In some cases, certain lenders might provide you a different option when it comes to paying PMI but most lenders require it to be wrapped into the mortgage payment.
As a homebuyer, you may not be thrilled to have to pay PMI with your mortgage. Who wants to pay a higher monthly payment? But believe it or not, there are actually reasons for PMI that benefit you as a buyer. Plain and simple, PMI makes it easier for you to buy a house. If lenders didn’t require PMI, then they would require a much higher downpayment, which would make it harder for first-time homebuyers to qualify for the loan. PMI is not something to be afraid of because it allows you to put less money down when you finance.
Now, you might be wondering, if I buy a home with less than 20% down and have to pay PMI, will I be paying it for the entire duration of my loan? If I have a 30-year mortgage, will I be paying it every month for the next 30 years?
The good news is that you won’t have to. The PMI payment exists as long as you don’t have 20% equity in the property. Once you have more than 20% equity, the PMI will automatically disappear.
So, if you’re looking to buy a home but don’t have the 20% downpayment, how much should you expect to pay in PMI?
The amount you’ll pay is based on many factors and is not a set number for everyone. If you’re trying to determine how much you’ll be able to afford, you can look into it beforehand to get an idea of what to expect to pay.
The amount depends on the size of the loan, your debt-to-income ratio, your credit score, and the downpayment amount. Fortunately, there are PMI calculators out there you can use to get an estimate, such as this one from NerdWallet.com.
If you’re concerned about PMI or anything else related to financing your home, Triangle has a great team of Mortgage Originators available to meet with you and answer any questions you have. You can visit one of our branches to set up an appointment or email them directly from the website! Our mortgage team will help you look through the different options available to you and find the one that will work best for your situation.
