What is PMI?

PMI (Private Mortgage Insurance) is extra insurance lenders require from most homebuyers when the loan exceeds 80% of the property’s value. Unless your down payment is more than 20%, you will likely need PMI.

PMI accomplishes two things in the mortgage industry. First, it allows borrowers to purchase a home without having to save for years to make a large down payment. Second, it protects the lender against loss if the borrower defaults on the loan.

The type of loan you have will determine what your PMI premium will be (your credit history has no bearing). The cost will typically be included in your monthly mortgage payment. It amounts to approximately one half of one percent annually. If your loan amount is $100,000, you can expect to pay $500 per year for PMI ($100,000 x .01% = $1,000 x .5 = $500).