PMI: What is it?
PMI stands for Private Mortgage Insurance.
It is insurance policy that lenders often require from borrowers to obtain on a (conventional mortgage loan) who make a down payment of less than 20% on their home. PMI protects the lender in case the borrower defaults on the mortgage.
Key points about PMI:
>Down Payment Threshold: When a homebuyer's down payment is below 20%, lenders typically require PMI to mitigate the higher risk associated with lower equity. Therefore, to avoid paying Private Mortgage Ins, if a borrower is able to put 20% down it might be to their advantage.
>Premium Payments: The borrower pays monthly premiums for PMI, either added to the mortgage payment or as a separate fee. The cost varies depending on factors like the loan amount, credit score, and down payment.
>Cancellation: Once the borrower reaches a certain level of equity through mortgage payments or home appreciation, they may request PMI cancellation. Automatic termination may also occur under certain circumstances.
>Lender Protection: PMI primarily benefits the lender, not the borrower. If the borrower defaults and goes into foreclosure, PMI helps cover the lender's losses.
>Homeownership Opportunity: PMI makes it possible for individuals with limited funds to enter the housing market by allowing them to make a smaller down payment.
It's important for homebuyers to be aware of the cost and implications of PMI, as it adds to the overall expense of homeownership. Understanding the conditions for PMI cancellation can be a financial advantage for borrowers in the long run.
Also, please note PMI is different than home insurance, also known as homeowners insurance, which is type of property insurance that provides financial protection to homeowners. In the event of covered perils like fire, theft, vandalism, or natural disasters, home insurance helps cover the costs of repairing or replacing the damaged property.
Homeowners Insurance protects the homeowner against damage to the property and liability claims, while PMI protects the lenders financial interests in case of default.
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Maria Giovanni
Agent | License ID: 9575709
90 Canal Street, Boston, Massachusetts, 02114, United States