What is PMI and Do You Need It?

If you’re planning on buying your first home, you might have heard the term “private mortgage insurance” or PMI during your research. While the name explains what PMI is fairly well, you may still have questions about the logistics of it and whether you need to have private mortgage insurance when you buy your home.

In simple terms, private mortgage insurance is something that your lender uses to protect their investment. When you are granted a mortgage loan, there is a small chance that some issue will occur before the balance is paid in full. If you should default on your loan and fail to pay the entirety of it back to your lender, the private mortgage insurance is there to act as a safety net. The cost of the PMI payments are determined by a number of factors, most importantly the value of the home and the amount of money you have been lent.

Most new homeowners do not plan to default on their home loans, and as such, you might be wondering if there is a way around having to pay these extra fees. There is, as several situations can occur where the borrower does not have to pay for PMI. For example, if you are able to put at least 20% of the loan’s value toward the purchase as a down payment, if you have been approved for a VA or other government loan that does not require a PMI, or if you use a piggy-back loan to bypass the PMI.

Once you have already started paying your PMI premiums, you can get out of continuing to pay them if you have accumulated more than 20% equity, or if you have paid your mortgage to 80% of your home’s value. This takes time and effort, but it is an option to consider if you do not have a way around paying PMI premiums for the first years of your home ownership.

While paying for PMI might sound like an unnecessary hassle that you do not want to commit to, it is designed to serve a purpose, and having a PMI might qualify you to buy a home when you would not otherwise be approved. It is a system that is designed to benefit both the lender and the borrower.

Let my team at Keystone Realtors® meet all your real estate needs. I have over 16 years of experience in buying and selling in the Santa Clara and San Mateo County areas, specializing in the high-end, luxury market. Visit our website at https://www.paulphangureh.com/for listings and information. You can contact me at 650-924-2544, or email at paul@paulphangureh.com.

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