Private Mortgage Insurance, or PMI for short, is required on any loan with 80.01% or higher financing.


What is it?
PMI protects your lender if you were to get foreclosed on. Basically, if you did 95% financing on your loan, instead of your lender being on the hook for the entire loan, they are only on the hook for 78% because the PMI will step in and cover the rest of the loss to the lender.


How do I pay it?
Most commonly it is paid monthly in your monthly mortgage payment. However, if your credit score it high enough, you may have the option of “lender paid mortgage insurance” (LPMI). LPMI is basically buying out of the PMI. You pay a flat fee to the lender at settlement and the lender takes care of it monthly for you. LPMI is a great way to help keep you monthly payment low since you are not paying monthly PMI.


How long do I have to pay PMI?
If you do nothing, PMI will fall off automatically when you hit 22% equity from your original loan amount. However, you can turn off PMI due to appreciation in the home. Therefore, if you feel that you have 20% equity in the home, you can call you lender and set up an appraisal. Of course, you are paying for the appraisal, but if you do indeed have 20% equity in the home you can turn off the PMI. Just remember, you MUST have PMI for a minimum of 2 years. So even if you pay down your loan right away or have enough equity in the property, you will still pay the PMI for 2 years before it can be turned off.


Does PMI cover me if I was to get hurt?
No, it only protects the lender.


Why am I required to pay for this insurance when it protects my lender and not me?
Sorry, it’s federal law. Anyone who puts down less than 20% is considered to be more risky than someone who is putting 20% down.