Private Mortgage Insurance
If you put down less than 20% of the sales price of the home, you will be required to pay for private mortgage insurance (PMI). PMI protects the lender in case you default on your loan.
The monthly cost varies based on your loan type, your down payment size, and your credit score. Usually, the cost of the PMI is added to your monthly mortgage payment (along with insurance, taxes, and interest). For example, on a loan of $142,000 the monthly mortgage insurance payment was $99.
Some buyers will pay it as an upfront fee at closing and others will agree to a higher percentage rate in lieu of PMI. How a buyer chooses to pay for PMI is a matter of running the numbers and deciding what works best in your situation. You can ask your lender to give you some options and review them with your family and/or accountant to help you decide.
Once you have reached at least 20% equity in your home, you can contact your lender to start the process to drop the PMI from your monthly payment. You will need to pay for an appraisal for the bank to confirm your home’s current market value. When we did this recently, we saved ourselves over $80 a month!
If you are thinking about buying, download a free copy of my guide to buying a Tallahassee home.