What is PMI?

What is PMI?

PMI stands for Private Mortgage Insurance. This is insurance that you pay if your down payment is less than 20% of the home’s purchase price. The insurance protects the lender in the event that you default on your payments.

How is it paid?
PMI is paid in two main methods:
Method 1: Monthly Premium
This is the most common way to pay your PMI and more than likely how you will pay yours. A small amount is simply added to your monthly mortgage. Easy peasy.
Method 2: Single Upfront Premium
In this method, you will take ALL of your PMI and pay it in one lump sum at closing. This is less common just because many people like to keep their cash and spread it out the payments.

Ask your lender what your PMI looks like to decide what method works best for you.

Should you put down 20% to avoid paying PMI?
This all depends on your financial situation. Many buyers think they have to put 20% down in order to buy a home in the first place, and this myth comes from hearing about PMI. The truth is that you could put as little as 3.5% or 5% depending on the type of loan you acquire. It’s actually MORE common for buyers to put LESS than 20% down. This allows them to keep more cash in their pocket.