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What Is Private Mortgage Insurance PMI
Freddie Mac defines PMI as:
“An insurance policy that protects the lender if you are unable to pay your mortgage. It's a monthly fee, rolled into your mortgage payment, that is required for all conforming, conventional loans that have down payments less than 20%.
Once you've built equity of 20% in your home, PMI can be cancelled and removed from your mortgage payment.”
As the borrower, you pay the monthly premiums for the insurance policy, and the lender is the beneficiary. Freddie Mac goes on to explain that:
“The cost of PMI varies based on your loan-to-value ratio – the amount you owe on the mortgage compared to its value – and your credit score, but on average you can expect to pay somewhere between $30 and $70 per month for every $100,000 borrowed.”
The National Association of Realtors, stated that the average down payment for all buyers last year was 10%. For first-time buyers, that number dropped to 6%, while repeat buyers put down 14% (no doubt aided by the sale of their home). As you can see, PMI did not stop these buyers from buying their dream homes.
Key Takeaway: The larger your down payment on a house, the lower your monthly housing cost .
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