If you’ve started shopping around for a mortgage, you may have heard lenders mention private mortgage insurance, or PMI. If you didn’t get a chance to ask them about the details, we’re here to help! Let’s go over what exactly PMI is, and whether or not to get a loan that requires PMI.
What is PMI?
PMI is a type of insurance that is sometimes required to be added onto a conventional mortgage loan. This is insurance for the lender, not you; if you stopped paying your mortgage and went into default, PMI would ensure that the lender recoups some of their investment. Lenders often require PMI if you’re making a smaller down payment—usually under 20%. When you make a larger down payment, lenders assume less risk and so do not require PMI.
PMI is usually set up by the mortgage lender, and the cost is rolled into your monthly mortgage payment. Once you’ve reached a certain point in your mortgage repayment, you can drop your PMI.
Should I get a loan that requires PMI?
PMI is best to avoid if possible, as it’s additional cost with no real benefit to you—only to the lender. It can help you qualify for a loan that you couldn’t otherwise afford, but it’s best if you can get the home you want without it.
How do I avoid PMI?
PMI is only associated with conventional loans, so you can ask your lender about other types of loans such as FHA. However, conventional loans typically have the best rates, so you’re still spending extra money overall with another loan type (though it may work out to more or less than PMI, depending on a number of factors).
The surefire way to avoid PMI is to make a larger down payment. If you can put 20% or more down, you can avoid PMI. If you don’t have that amount of money saved up, you can get cash for your dream home’s downpayment by selling your distressed home to MarketPro.
Get cash from MarketPro.
At MarketPro Homebuyers, we buy homes for cash—in any condition. You can use a no commission sale (yes, believe it or not, a no commission sale is truly possible!) to maximize your profit from the sale of your current house. With this cash, you can make a larger downpayment on your new house and avoid PMI.
Work with MarketPro:
We’ll give you a fast cash offer for your current home just as it is now; we provide a no commission sale with no repairs, no upgrades, no inspection, and no fees. You can even choose your exact closing date. Our team will walk you through your quote, including a review of what your home would likely bring on the open market.
If you’re in Washington, D.C., Maryland, Virginia, Pennsylvania or Florida, we’d love to show you how easy and stress-free the sales process can be. Contact us today for a same-day, no-pressure quote.