What is PMI?

PMI -- it's like the loathed word when purchasing a home because perception is, is that it's another added cost on top of mortgage and unaffordable.

GUESS WHAT?! We owned our last home 5 years ago. We had well over 20% to putdown on it to not have PMI, but decided that it was actually cheaper to pay the monthly PMI than to use up all of our cash in a down payment.

PMI can actually work in your advantage if you look at it the right way. ↓ (and it has to make sense for you, we recognize every person and every financial situation is different).

Imagine having $60,000 available for a down payment on a $300,000 home. While you can use all of that to make your monthly payment significantly less. Let's say you put 5% down at $15,000 and that leaves you with $45,000 to use for other investments. The cost of your PMI per month would add $125-$250* to your mortgage all while you're MAKING MORE money on the $45,000 you invested elsewhere. Like another home or home improvements on the house you’re purchasing (remember improvements = equity).

That's EXACTLY what we did! We leveraged the banks money for our mortgage, paid a little bit more on a monthly payment and BOUGHT MORE REAL ESTATE with the cash we had left! PMI is short for Private Mortgage Insurance. PMI protects the lender, not you, If you stop making payments on your loan.

It is a type of mortgage insurance you might be required to pay for if you have a home loan. Required by lenders when you have less than 20% down payment. Lenders require borrowers to pay PMI when they can’t come up with a 20% down payment on a home. PMI is rolled into your monthly mortgage. It’s a fee, rolled into your mortgage payment, that’s required if you make a down payment less than 20%.

All FHA loans require mortgage insurance premium (MIP) regardless of down payment size. If you have an FHA loan or have a mortgage with lender-paid mortgage insurance, you’ll nee dot refinance your loan to ditch those insurance payments for good.

PMI is affordable! For example: If you buy a $300,000 home, you could be paying somewhere between $1500-$3,000 per year in mortgage insurance. This cost is broken into monthly installments to make it more affordable. In this example, you’re likely looking at paying $125-250 per month. Allow you to buy now instead of waiting until you have20% down payment. While PMI is an initial added cost, it enables you to buy now and begin building equity versus waiting five to ten years to build enough savings for 20% down payment.

There are ways to remove your PMI. You can likely get rid of PMI if your equity has increased to at least 20% and / or can refinance into a conventional loan.

PMI Recap

• Insurance for your lender if you miss a payment.
• Required with less than 20% down payment
• Rolled into your mortgage
• Required for FHA loans no matter the down payment amount.
• Affordable.
• Smart decision if you want to buy now
• Can be removed if equity has increased to 20%

We'd love to talk you through this more to see if it's something you want to leverage as you think about buying a home.