The Secrets of Private Mortgage Insurance

If you’re like many people, you’re having a tough time coming up with a 20 percent down payment to buy a home - and that’s perfectly fine. There are dozens of loan programs that don’t require you to come up with that much money.

But the fact is that in the vast majority of cases, if you don’t have a 20 percent down payment, you’re going to have to buy private mortgage insurance, or PMI. The one exception is with a VA loan - you can use a VA loan without paying for PMI.

What is Private Mortgage Insurance?

Private mortgage insurance is an insurance policy most lenders will make you buy - but it doesn’t protect you. It protects the lender. The reasoning behind it is that people who put down less than 20 percent of their own money are more likely to default on their own mortgages (whether or not that’s even true) - and lenders want an insurance policy backing them up in case you’re one of the people who walks away. A bank can’t do anything with a house but sell it, which costs money and resources, so they want to be covered in the event that that happens.

When Can You Stop Paying PMI?

Once you’ve built up 20 percent equity in your home, using your own money through mortgage payments or extra payments, you can ask your lender to stop charging you for PMI. (The exception is if you use an FHA loan. If you have an FHA loan, you’ll have to pay for mortgage insurance for the entire lifetime of the loan.)

How Much Will PMI Cost You?

A lot of people figure it’s no big deal to pay PMI for a while - but those charges can really add up, and in some cases, it’s worth saving money a little longer to get a higher down payment. It’s absolutely essential that you do the math before you accept a loan that charges you PMI, because over time, you could end up paying a lot more than you would have if you’d saved up a higher down payment.

Are You Buying a Home in Lakewood or Long Beach?


If you’re buying or selling a home in Lakewood or Long Beach, we can help. Call us at 562-882-1581 to find out how!


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