PMI on a Conventional Loan: Everything You Need to Know
If you're considering applying for a conventional loan, you may have heard about private mortgage insurance (PMI), which is often required for borrowers who make a down payment of less than 20% of the home's value. In this article, we'll explore what PMI is, how it works, and what you can expect to pay.
Private mortgage insurance is a type of insurance that protects the lender in case the borrower defaults on their loan. It's typically required when the borrower's down payment is less than 20% of the home's value. The cost of PMI varies depending on the size of the down payment, the loan amount, and the borrower's credit score.
PMI is usually added to the borrower's monthly mortgage payment and is included in the total monthly payment. The cost of PMI is based on the loan-to-value (LTV) ratio, which is the percentage of the loan amount compared to the home's value. The higher the LTV ratio, the higher the cost of PMI.
The cost of PMI depends on several factors, including the size of the down payment, the loan amount, and the borrower's credit score. On average, PMI costs between 0.3% and 1.5% of the original loan amount per year. For example, if you have a $200,000 loan and your PMI rate is 1%, you'll pay $2,000 per year, or $166.67 per month, for PMI.
Yes, PMI can be removed once the borrower has paid off enough of the loan or the home's value has increased enough that the LTV ratio is below 80%. However, borrowers will need to request that the PMI be removed, and there may be additional requirements, such as an appraisal, to confirm the home's value.
If you want to avoid paying PMI, there are a few options:
At Mortgage Brokers Pro , we understand that buying a home can be overwhelming, and we're here to help. Our team of experienced loan officers can answer your questions about PMI and help you find a loan that fits your needs. Contact us today to learn more.