{"id":369328,"date":"2016-04-04T10:47:23","date_gmt":"2016-04-04T15:47:23","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/realestate\/mortgages-equity-loans\/private-mortgage-insurance.html"},"modified":"2024-04-10T23:56:34","modified_gmt":"2024-04-11T04:56:34","slug":"private-mortgage-insurance","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/realestate\/mortgages-equity-loans\/private-mortgage-insurance.html","title":{"rendered":"What Is Private Mortgage Insurance?"},"content":{"rendered":"\n
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What Is Private Mortgage Insurance?<\/h1>\n
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\n By FindLaw Staff<\/a> | Legally reviewed by Robert Rafii, Esq.<\/a>\n | Last updated\n
\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n

Homeownership may come with extra costs. Unlike homeowners insurance<\/a>, private mortgage insurance (PMI) protects home mortgage<\/a> lenders.<\/p>\r\n

Suppose a first-time homebuyer defaults on (stops paying) conventional mortgage<\/a> payments. As long as some type of mortgage insurance (type of PMI) policy exists, your bank will be protected if it can’t recoup its losses in foreclosure. PMI will reimburse your lender for the original loan if there isn’t enough home equity to clear the loan balance after your home is sold.<\/p>\r\n

A Federal Housing Administration<\/a> mortgage loan (FHA loan) is one type of loan that requires upfront mortgage insurance premiums (MIP). The same is true of VA loans<\/a>, which charge you a funding fee to fund PMI. PMI payments can be removed over time if you take the right steps.<\/p>\r\n

You can avoid paying a PMI lump sum or upfront premium as part of your closing costs in different ways. You can pay a monthly PMI premium or improve your LTV ratio to avoid PMI altogether.<\/p>\r\n

An LTV ratio, or loan-to-value ratio<\/a>, is the relationship between your home’s value and how much you’re borrowing to buy it. If you have a low down payment, you will have a higher LTV ratio. Most lenders will require the borrower to purchase private mortgage insurance if the down payment amount of the home loan is less than 15% to 20% of the loan amount. You usually need PMI until your LTV ratio falls below 80%.<\/p>\r\n

The PMI fixed rate, usually between 0.1% and 2% of your conventional loan, is added to your monthly mortgage payment. It can really add up over time and impact your financial situation.<\/p>\r\n

The PMI cost is calculated using factors like your home’s purchase price, down payment, credit score, and insurance policy. To cancel PMI, your mortgage lender needs to see that you have accumulated significant equity in your home to remove PMI payments from your mortgage payments.<\/p>\r\n

Two Ways To Remove Private Mortgage Insurance<\/b><\/h2>\r\n

Typically, your equity can reach sufficient levels to remove the PMI premiums from your mortgage payments in two ways. First, and the most obvious, is that you’ve made enough payments to lower your mortgage balance.<\/p>\r\n

As you pay over time, your equity amount increases. At some point, the mortgage lender will no longer require private mortgage insurance. You will then be able to remove the cost of PMI from your mortgage payments.<\/p>\r\n

A second way is to increase your home’s value. This can be through property value increases or a remodel. However, even if this happens, some mortgage lenders will make you wait. They’ll want some time to establish that the increase in the home’s value is long-lasting and not temporary.<\/p>\r\n

Cancellation of Private Mortgage Insurance<\/b><\/h2>\r\n

Removing your private mortgage insurance costs depends on loan terms. It is up to your mortgage lender and the insurer. But some basic guidelines apply to houses purchased after July 29, 1999, under the Homeowners Protection Act<\/a>:<\/p>\r\n