Jul 19, 2023
When buying a home with a down payment of less than 20%, you may be required to pay for private mortgage insurance (PMI). PMI protects the lender in case you default on your mortgage. While PMI is an added expense, there are ways to remove it as you build equity in your home.
What is PMI and How Much Does It Cost?
PMI is a type of mortgage insurance that buyers are typically required to pay for when their down payment is less than 20% of the home's purchase price. The cost of PMI varies based on factors such as your credit score and loan-to-value ratio. On average, you can expect to pay between $30 and $70 per month for every $100,000 borrowed.
Borrower-Initiated PMI Cancellation
Once your loan-to-value ratio falls below 80% of the home's original appraised value, you can request PMI cancellation. To qualify, you'll need to have a positive payment history, be current on your mortgage payments, and satisfy any additional requirements set by your lender.
Automatic PMI Termination
By law, lenders are required to automatically cancel PMI on certain mortgages when the remaining mortgage balance hits 78% loan-to-value ratio. Similar conditions to borrower-initiated cancellation, such as an on-time payment history, apply here.
Final PMI Termination
For some loans, PMI must be automatically terminated once the loan term reaches its midpoint on the repayment schedule. You must be current on your payments to qualify for this type of cancellation.
Some lenders offer conventional loan products without required PMI, but they often charge higher interest rates. Another option to consider is Steadworth, our platform assists homebuyers in obtaining up to 15% towards their down payment with no interest or monthly payments.
Private mortgage insurance is a common requirement for homebuyers who put down less than 20% of the home's purchase price. While PMI adds to the cost of your monthly mortgage payments, there are ways to remove it as you build equity in your home. Understanding the options available to eliminate PMI can help you save money and achieve financial freedom in homeownership. Consider exploring these options and consulting with lenders or platforms like Steadworth to find the best solution for your specific needs.