How to Understand Private Mortgage Insurance

Step-by-Step Guide

1. 1

   Step 1: Determine whether or not you will have to pay PMI after purchasing a home.

   The home value is based on the appraised value at the time of purchase.
   
   In the unlikely event that the home is purchased for more than the appraised value, the lower purchase price is used as the home value.
   
   If the amount you are putting down is less than 20 percent of the value of the home, you will be required to pay PMI.
   
   For example, if you are paying $10,000 up front on a home that appraised for $200,000, you will have to pay PMI.
2. 2

   Step 2: Weigh the pros and cons of paying a smaller down payment to paying PMI.

   For example, putting less down might allow you to buy a home sooner, buy a more expensive home and/or invest more money in improvements.
   
   You should know what the estimated PMI payment will be to help you make the best decision.
   
   It is typically $50 to $100 a month. , PMI is not normally handled as a separate payment to your lender. ,, You have reached the midpoint of your amortization schedule.
   
   For example, on a 30-year loan, your PMI would be dropped after 180 of the 360 payments are made.
3. 3

   Step 3: Make PMI payments on a monthly basis as part of your mortgage payment.

4. 4

   Step 4: Request a cancellation of PMI once your outstanding mortgage balance is less than 80 percent of the original home value.

5. 5

   Step 5: Expect the lender to automatically terminate PMI payments according to federal law

6. 6

   Step 6: in the following two situations: Enough money has been applied to the principal to cause the loan value to reach 78 percent of the home value (or 77 percent of the home value for high-risk loans).

Detailed Guide

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