What is Private Mortgage Insurance?

If you’re borrowing from a lender to buy a house for sale in Charlotte, NC (or anywhere else in the U.S., for that matter), but you don’t have a 20 percent down payment to put toward the home, you’ll most likely have to pay for private mortgage insurance, or PMI.

But what is PMI, and how much is it going to cost you?

Private mortgage insurance, which is commonly called PMI, is a form of insurance that protects your lender. Lenders may think you’re a higher risk if you’re not putting down a 20 percent down payment; they’re shouldering all of the burden on your home loan, and they’re not completely sure that you’re committed to making all your payments because you haven’t invested anything in the home yet.

Private mortgage insurance protects the lender if you default on your payments. The mortgage insurer will give your lender the amount that you didn’t pay up to 20 percent of the home’s sales price (that’s why they want you to buy mortgage insurance if you’re not giving them a 20 percent down payment).

You don’t need private mortgage insurance if you’re using a VA loan, and there are a handful of other programs that may allow you to forego PMI as well—just talk to your lender about your options.

When Can You Stop Paying for Private Mortgage Insurance?

Once you’ve reached 20 percent of the home’s value in equity, you may be eligible to stop paying for private mortgage insurance. You’ll need to call your lender and ask about cancelling your payments; in many cases, it’s not an automatic process.

Your lender will want you to prove that your equity is at least 20 percent, so they’ll most likely ask you to pay for an independent appraisal. Typically, this costs between $300 and $500.

Are You Buying a Home in Charlotte?

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What is Private Mortgage Insurance?