What is PMI?
Private Mortgage Insurance, known as “PMI” or just “MI,” is an added cost applied to your mortgage payments, and often also includes an upfront cost. PMI is charged when you are borrowing more than 80% of the purchase price. This is to offset some of the risk to the lender, as should a default occur, they will have a harder time recovering the full amount that that paid out. If you have a 20% or more down payment, then you won’t have to worry about PMI. If you are borrowing more than 80% of the home purchase price, then you will have this included in your payment, which will affect your ability to qualify based on debt-to-income ratio, referred to as DTI (since it will raise your house payment, and increase your DTI). Also, in most cases there is often an upfront cost assessed at closing for PMI. This can be anywhere from 1%-3% of the purchase price and can vary based on a number of factors. Keep this in mind, as you will either have to pay this out of pocket as a part of your closing costs, or will need to work it into the contract negotiations as a seller paid cost if for a purchase transaction.
There is also another option called “single premium MI” in which you pay one larger up front amount, which then eliminates the monthly payment. As mentioned above, all PMI figures can vary based on loan type, loan use, loan amount, etc. Be sure to discuss your MI options with your mortgage loan specialist to ensure that you fully understand where the money is going, and where it will need to come from.
Calculate your PMI below: