The PMI Truth

         So, you have found the perfect home and have calculated what your monthly payment will cost based upon the sale price.  You talk to the lender, ready to sign the papers and the lender mentions those tiny little letters that many don’t even think about, PMI, or principle mortgage insurance.  Your lender may require mortgage insurance, because if you default on your loan, the lender will still get paid by the insurance on your loan. When looking for your perfect home and determining what you can afford for a payment, you need to consider this.  When your down payment is less than 20%, on conventional loans, and on all FHA loans, you will need to pay an insurance premium on the loan when the loan is taken out and the PMI monthly payments.  When you take a loan out the lender will charge 1.75% of the loan at closing.  This amount does not come out of your pocket, instead, it is added to the balance of the loan.  Then, when you make your monthly payments, you will be charged 1.35% of the loan.  This means if you have a loan of $200,000, your monthly PMI will be $270.00.  Unlike in the past, when the PMI could be removed once you have 20% equity or after seven years, now, the PMI monthly payments remain in place for the life of the loan.  However, once you have 20% equity in your house you can refinance to remove the PMI.  This is just something to keep in mind when purchasing a home.  Happy house hunting!