BlogHomebuyingFinancial IQ March 04 2021

What is Mortgage Insurance?

What you need to know about private mortgage insurance.

Mortgage insurance may seem like just one more painful added expense when considering buying a home and how much you can afford. And it's true, private mortgage insurance, or PMI, does increase your monthly payment.

But it also makes it possible for you to achieve homeownership if you're facing certain financial challenges, like a low down payment or less than perfect credit. 

And fortunately, it doesn't have to last forever. Here's what you need to know.

What is PMI?

Private mortgage insurance protects your lender if you can't pay your loan back for any reason.

Will I need PMI?

The rule of thumb is, if you have less than 20% of the sales price of the home to put down, your lender will require PMI. Also, if you are taking out an FHA loan, you will need to pay PMI, as FHA loans are by design low down–payment loans.

How much does PMI cost?

The cost of private mortgage insurance varies based on your lender, however much down payment you do have, and your credit history, but it is typically around 1% of your total loan. To calculate your monthly PMI, you'd take 1% of your total loan and divide it by 12; that monthly payment would be folded into your monthly mortgage payment.

Do I have to pay PMI forever?

No. The lender or servicer must stop the PMI when your mortgage balance reaches 78 percent of the original purchase price, or at the halfway point of your amortization schedule. To get your PMI paid off faster, you can pre-pay your mortgage by making additional payments that go directly toward your principal.

Can I refinance and get rid of PMI?

If you have been in your home for a few years, yes. Many homes have shot up in value in the past 3 to 5 years, and mortgage rates are at record lows. If your home's value has increased, you've built up equity that could mean you now owe less than 80% of what the home is worth, which is what that 20% down payment threshold would be. So, a refinance could help you lose the PMI. Just be sure to take into account the closing costs of your new loan.

Another option is to have your home reappraised to see if its value has risen enough that you have sufficient equity to negotiate with your lender to drop PMI.

Although PMI adds to your monthly costs in the short term, it can help you grow financially in the long run by helping you realize the dream and wealth-building of homeownership.

Search Results for query

April 15 2021

How to Get a Mortgage When You're Self-Employed

Here are a few things you need to consider to land the best possible mortgage when you're self-employed.

Read More

April 07 2021

3 Surprising Refinancing Mistakes

When refinancing, be careful to avoid some pitfalls and traps that could cost you money in the long run. Here are some of the most common mistakes people make when they rush to refinance.

Read More

March 31 2021

10 Unexpected Spring-Cleaning Tips

Keep your home in the best possible shape with these surprising life hacks.

Read More

March 23 2021

Tax Season Tips for Homeowners

If you're a new homeowner, you might be wondering how homeownership affects your taxes. The answer is: It depends on one big thing—will you be itemizing your deductions or claiming the standard deduction?

Read More

March 11 2021

A Virtual Homebuying Helper: Lennar Homebuying Seminars

Online webinars are making it easier than ever to help buyers get educated and take the first steps toward their dream of homeownership.

Read More

March 04 2021

What is Mortgage Insurance?

Mortgage insurance may seem like just one more painful added expense when considering buying a home and how much you can afford. And it's true, private mortgage insurance, or PMI, does increase your monthly payment

Read More

February 25 2021

What to Expect on your Path to Homeownership

Our Digital Mortgage Experience is a modern mortgage application with a personal touch! We’ve designed our Digital Mortgage experience to make things easy, intuitive, and efficient; which gives us the ability to be with you through the entire process- from...

Read More

February 18 2021

How to Get a New Construction Loan

Tips and steps for buying a new-construction home.

Read More

February 11 2021

What's In Your Monthly Mortgage Payment?

Understanding Mortgage Insurance, Escrow, and Supplemental Home Costs

Read More

12345Last

Mortgage Calculators

Crunch the Numbers With Our Helpful Mortgage Calculators

Payment Calculator

payment calculator

Payment
Calculator

Affordability Calculator

affordability calculator

Affordability
Calculator

Refinance Calculator

refinance calculator

Refinance
Calculator

The Modern Digital Mortgage with a Personal Touch

Paperless. Effortless. Awesomeness TM

Simplify the home financing process with our Digital Mortgage. We'll be here to help navigate you through the entire process.

Get Pre-qualifiedWhat is a Digital Mortgage?