If you’re in the process of buying a home, you may have come across the term Private Mortgage Insurance (PMI). For many Dallas homebuyers, especially those who can’t put down 20% upfront, PMI is an important factor to understand. Let’s break down what PMI is, why it exists, and how it impacts your mortgage.
What is PMI?
Private Mortgage Insurance is a type of insurance that protects the lender not you if you stop making mortgage payments. PMI is usually required on Conventional loans when the borrower puts down less than 20% of the home’s purchase price.
Why Do Lenders Require PMI?
Lenders take on more risk when you buy a home with a smaller down payment. PMI helps offset that risk by giving lenders a financial safety net. While PMI adds to your monthly cost, it also allows you to buy a home sooner without waiting years to save for a large down payment.
How Much Does PMI Cost?
PMI typically ranges from 0.3% to 1.5% of your original loan amount per year. The cost varies depending on:
- Your down payment size
- Your credit score
- The loan type and lender’s policies
For example, on a $300,000 loan, PMI could cost between $75 and $375 per month.
How Do You Pay PMI?
PMI is usually added to your monthly mortgage payment, but some lenders may offer options to pay it upfront at closing or as a combination of both.
How Can You Remove PMI?
The good news is PMI doesn’t last forever. Here’s how you can get rid of it:
- Reach 20% Equity: Once you’ve paid down your mortgage enough—or your home value has increased—you can request PMI removal.
- Automatic Termination: Lenders are required to remove PMI once you reach 22% equity, based on your original loan balance.
- Refinancing: If your home value has risen significantly, refinancing might eliminate PMI sooner.
Final Thoughts
While PMI may feel like an added expense, it helps many buyers achieve homeownership sooner than they could otherwise. Understanding how PMI works and how to remove it can help you plan smarter for your financial future.
At The Tuttle Group, we’ll walk you through all the details of your mortgage, including whether PMI applies. Contact us today to learn more about your loan options.
