Private Mortgage Insurance, otherwise known as PMI, is insurance that protects the lender in case the borrower is unable to pay the mortgage.
The benefit of PMI to the borrower on a conventional mortgage is that you may typically buy a home with only a 5% down payment instead of the traditional 20%.
There are 2 ways to finance your PMI:
The first option is to build your PMI into the mortgage, this is known as Lender Paid PMI. If you’re planning a down payment that is less than 10%, Lender Paid PMI can be financially advantageous. Why? Well, Lender Paid PMI, typically, has a higher interest rate it will also help your monthly payment to be low. Depending on your situation, this may be an excellent option for you.
The second option is to pay your PMI separately from your mortgage. In most cases, if your down payment is greater than 10% it makes sense to pay the PMI monthly. Why? It’s not worth taking a higher interest rate for 30-year home loan when you’ve may only be paying PMI for just a few years.
If you have any questions on your particular situation, what PMI option is right for you, please give me a call directly and I’ll be happy to help you understand which options can be the best decision for you and your family.