If you are looking to buy a home but are putting in less than a 20% down payment, you’ll likely be paying PMI or Private Mortgage Insurance. PMI is an insurance policy for the lender in case you stop making your monthly payments.
PMI is essentially an additional payment as part of your mortgage that acts as insurance for the lender of a mortgage if the borrower stops paying back their loan. You’ll only have PMI to pay if you put a down payment of less than 20% on your home.
Your down payment is less than 20%: Most conventional lenders require a down payment of at least 20% of the purchase price. Therefore, you may have to pay for PMI when buying a home with a down payment of less than 20% of the purchase price.
For refinance loans: Your loan-to-value ratio is over 80%. If you’re refinancing your current mortgage, most conventional lenders require an LTV ratio of 80% or less to avoid paying PMI. If your LTV is over 80%, you may need to pay PMI.
If you do need to pay PMI, your lender, not you, will choose the provider of the PMI. In most cases, you won’t know the provider as you make the payment directly to your lender, and they will pass the PMI portion along to the PMI provider.
Monthly Premium: The most common PMI option is to have an additional charge each month with your mortgage payment. When paying a monthly premium, our lender adds PMI to your monthly mortgage payment.
Upfront Premium: Instead of a monthly premium, another option is to pay the entirety of your PMI upfront at closing. It’s a higher cost upfront, but you’ll have a lower monthly mortgage payment moving forward.