PMI: Do you Need Private Mortgage Insurance?

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The recommended down payment for a new home is twenty percent. Not everyone can afford to put down that much cash when purchasing a house. But, not meeting the twenty percent down payment has a downside.

Private Mortgage Insurance Explained

Private mortgage insurance, known as PMI, is what someone obtains when taking out a standard home loan. Lenders tend to force those buying a house using a conventional home loan to also buy into PMI in case of a foreclosure. They use PMI as protection for themselves while charging the new homeowner for the inability to pay a twenty percent down payment.

Having PMI does assist buyers in getting approved for a standard home loan. But, that is generally where the good news stops. Guaranteed approval is still not available. Credit scores count more than PMI.

Should people avoid private mortgage insurance?

Conventional loans are the typical loan for most people looking to purchase a house. A drawback of that type of loan is the government has no insurance for it.

If someone eventually finds the twenty percent home loan-to-value ratio, the lender removes the PMI fees. However, the borrower must formally request the PMI payments stop through their lender. It is not automatic.

Ways of avoiding PMI:

  1. The ability to pay the twenty percent down payment will instantly alleviate the need for PMI. Both borrower and lender agree on the loan payments without the forcefulness of the PMI requirements.
  2. Federal Housing Administration, or FHI, loans only require a 3.5 percent down payment. The snag with FHA loans are the higher fees and longer approval times. However, they are great for borrowers with less than best credit scores.
  3. Always keep track of payments and the percentage of the loan they pay. The moment the twenty percent mark becomes a reality, formally requesting the removal of PMI will eliminate the extra fees charged with the mortgage.
  4. Shop around for the lowest mortgage payments as well as PMI fees. No two lenders are alike, and a little research will save a lot of money in the end.

Private Mortgage Insurance adds monthly fees to existing payments. Each person is different. Each home purchase is unique. It is a matter of finding what best fits a family’s budget and needs.

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Melissa Thompson

Melissa is a mother of 2, lives in Utah, and writes for a multitude of sites. She is currently the EIC of and writes about health, wellness, and business topics.