Private Mortgage Insurance (or PMI)

There’s a lot of terms or “jargon” associated with buying and financing real estate. To those in the business or with lots of real estate experience, private mortgage insurance is a day to day term. But, to first time home buyers, it can be a head scratcher, so…in a nut shell, PMI is a fee that a home owner has to pay a lender if they have less than 20% equity or put down less than 20%. The exception to this would be the buyer using a VA loan. This is a special benefit to active and inactive military that exempts them from this fee.

Here’s a few things you should know about PMI:

The name is a deceptive. Private Mortgage Insurance does nothing for you, the borrower. It benefits the lender in case of default. The homeowner is not the beneficiary as the name might imply.

The theory is, that once the property own has 20% equity, the PMI fee “goes away”. This equity can be achieved by either paying down the loan, improving the property or market conditions raising the value of the asset. I have yet to find a lender that pro-actively has just taken the monthly fee off of the mortgage statement. In fact, great efforts are sometimes required to eliminate the fee – including getting and paying for a professional appraiser (approximately $1,000).

The simplest way to avoid PMI is to put 20% down and if you don’t have that luxury, speak to your lender to see if they have any programs that don not require the borrower to put 20% down.


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