Primary Mortgage Insurance, or PMI, is insurance the bank requires a borrower to get in order to secure their interest. As the borrower, or home buyer, you pay a monthly fee for this. This can increase your monthly payment significantly; over $100 in many cases. In turn PMI can hurt your borrowing strength as your monthly debt to income is affected by a higher payment. If PMI can be avoided, it can save you money each month and in the long run.
PMI can be avoided by putting 20% down on a purchase. Conventional 20% down loans do not carry MPI as the bank already has some collateral in the case that a buyer defaults on their loan. There are other types of laons that do not require PMI such as USDA and VA, but not all properties and not all buyers are eligible for these loans.
For most loans, PMI automatically goes away once a borrower has 22% equity in their home. It could disappear with 20% if a borrower gets an appraisal done and can prove their equity position. However, in some loans, such as FHA, PMI is for the life of the loan.
Keep these things in mind when shopping for your mortgage and let a professional Realtor help guide you in the right direction.
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