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What is Private Mortgage Insurance (PMI)

Have you ever wondered what PMI is and what it has to do with not having a down payment to purchase a house?
What is PMI?
PMI or Private Mortgage Insurance is an insurance product that is added to a mortgage loan when a borrower doesn’t have the traditional 20 percent down payment for a home. Private mortgage insurance is a percentage of your entire loan amount. PMI helps reduce a lender’s risk of loss should a borrower not be able to repay the loan.

When a loan includes PMI you can expect your monthly mortgage loan payment to include principal due, interest due, property taxes, homeowners insurance premium, and your PMI premium.

Depending on the type of loan you have, PMI will remain on the mortgage until the remaining balance reaches a percentage acceptable for cancellation per the agreement with your lender.

Is PMI Good or Bad?
PMI can be a good option when someone does not have the necessary down payment for a loan, but still desires to own their own home. If a buyer chooses a loan with PMI, it is important to become educated about PMI.
Have a serious conversation with your lender to determine the specific expectations of the Private Mortgage Insurance agreement.

Are there alternatives to PMI?
Over time, PMI can be a significant added expense. There are additional options to consider if you don’t want PMI.
Adjust your Budget
Reviewing your budgeted price for a home is a great place to start. Consider going smaller until you build equity and save more money for long-term benefits.
Look for Low Down payment Loans
Friendship offers mortgages that only require a low down payment, such as 3%-5%. No PMI is required when certain qualifications are met. These qualifications might include your credit score and loan amount.
Gift Monies
Gift monies from family members are also acceptable to use for a down payment.
Wait and Save
Some people choose to delay the home buying process in order to save the 10%-20% for a down payment that will allow them to avoid PMI and have an overall lower monthly mortgage payment.

Do you have questions about the home financing process? Schedule a time to meet with a Friendship State Bank loan officer at one of their 8 locations. They would love to help as you begin the journey.