A lot of first time homebuyers hear the term PMI thrown around, but what is it and what does it mean for buying a home?
PMI stands for Property Mortgage Insurance and it’s fairly straightforward. When you put down less than 20% on a mortgage the lender will require PMI. PMI is insurance that protects the lender in the event that you fall into foreclosure on the home. Another time home owners may experience PMI is in a refinance situation where there is less than 20% equity in the home.
The fees for PMI will vary according to credit scores and the amount of money put down. PMI is usually paid monthly and rolled into the mortgage payment, but sometimes home buyers can make a large upfront payment instead.
Once the outstanding loan balance on the home reaches 80% of the home’s value, PMI can be removed. Home buyers who keep track of their home’s value and payments made can request this at that time. Once the home loan-to-value ratio hits 78%, home lenders are required to remove PMI.
Though it’s not a problem to pay PMI, most homebuyers want to avoid it if possible. That’s why so many mortgage and home owner advisors suggest a minimum down payment of 20%.
Have more questions about PMI or want to see what homes would fit your current price range? Call Deselms Real Estate today at 615.550.5565 to speak with one of our experienced agents!