Do you have concerns about securing a mortgage for a new home? Are you only able to provide a small down payment? Mortgage insurance might be the key for you to become a new homeowner in such a situation. If you apply for a mortgage, you will be required by your lender to provide a down payment equal to 20% of the home’s purchase price. If you can’t afford to pay that amount, your lender will likely assess that it would be too risky an investment. If that happens, your lender will ask that you take out private mortgage insurance.


So, what is PMI?

Private mortgage insurance, or PMI, protects the lender in the case that a borrower defaults on his or her mortgage loan. PMI will protect the lender if you (as the borrower) stop making the payments on your loan for any reason. You’re usually required to get PMI if your down payment is less than 20% on a conventional mortgage loan. PMI is set up by your lender and provided by private insurance companies. (If you’re refinancing with a conventional loan and your home equity is less than 20% of the full value of your home, your lender can require that you purchase PMI in this case as well.)


How do you pay for PMI?

There are several different ways to pay for PMI. Some lenders may offer more than one option, while other lenders do not. Before officially securing your mortgage, you should ask your lender what choices they offer. That said, the most common way to pay for PMI is via a monthly premium. This premium is added to your mortgage payment each month. Another way you might pay for PMI is with a one-time, up-front premium; this is paid at the time of closing. You should know that if you make such an up-front payment and then move or refinance your home, you may not be entitled to a refund of your premium. Sometimes you pay with both up-front and monthly premiums. Lenders might offer you more than one option for paying PMI, so be sure to ask your loan officer to help you calculate the total costs for a few different timeframes before making your decision.


PMI can help you qualify for a home mortgage loan that you might not otherwise be able to secure, even though it may increase the overall cost of your loan. But it can enable you to become a homeowner more easily in that your lender will appreciate the reduction in the risk of issuing a mortgage to you with a small down payment. Using PMI to secure a mortgage is often a worthwhile avenue for people who want to buy a new home sooner rather than later.

If you are in the market for a new home and are checking out your mortgage options, learning about private mortgage insurance is important to your understanding of financing your home purchase. Consulting a professional real estate agent is an excellent first step for navigating the market and understanding your options; a knowledgeable agent can explain how PMI might be a consideration for you. If you are interested in buying a house on or near the Texas coast, WEICHERT, REALTORS® – The Place of Houses is the professional team to call. The Corpus Christi, Texas-based real estate agency employs experienced property specialists who offer outstanding guidance and support to their clients as they go through the process of purchasing a new home. Contact WEICHERT, REALTORS® – The Place of Houses so the skilled real estate group can assist you.


Written by: Erika Mehlhaff