"Oh, great. One more thing to add to the monthly payment."
Private mortgage insurance or PMI is an insurance policy that a borrower pays. The beneficiary is the lender.
That might seem like a crazy arrangement, but the purpose of PMI is make sure that the lender gets paid.
Here's how it works: You look at a house. In order to get a lender to loan you money, you need to give them a 20% down payment. On a $500,000 house, that's $100,000!
With PMI, your down payment can be as little as 3.5% - $17,500!
The idea is simple really, if you default on the mortgage, the lender will go to the insurance company and get paid by them.
The cost of your PMI is based on:
- The value of the house
- The amount of your down payment
- Your credit score
Your PMI is tacked onto your mortgage payment every month. It might be as high as $200 a month on a $500,000 house, but you're able to get into the house and start building equity.
Most people can't afford a 20% down payment. Even on a $100,000 house, that's $20,000, a large amount of money to try to save up.
With PMI, you can get a down payment as low as 3% and move in right away.
Private mortgage insurance (PMI) is a simple way to get into a home without needing to save up money for years and years.
Ask a mortgage broker about using PMI to lower your down payment.