Private Mortgage Insurance (PMI) is specific to conventional loans when your down payment is less than 20%. It’s an additional amount paid monthly with your mortgage payment.

PMI tends to get a bad rap, but it does enable homeownership sooner, since you’re not required to save for a huge down payment.

The percentage of PMI required is primarily determined by your FICO score and the size of your down payment. If your FICO score is less than 700, you must stay under 45% Debt to Income Ratio.

The higher the FICO and the higher the down payment, the lower the cost. For example:

  5% down / $500,000 mortgage

10% down / $500,000 mortgage

FICO 720 = $217 per month

FICO 720 = $125 per month

FICO 640 = $533 per month

FICO 640 = $288 per month

• There is also Lender Paid MI (LPMI) where PMI is factored into an increased interest rate instead of being charged separately
• PMI insures the lender in the event you default on your loan. It’s not for your benefit in the event you can’t make your payments
• It’s set up by your lender and not something you have to acquire on your own • PMI can be cancelled after 2 years and when your principal balance is paid down to 80% of the home’s original appraised value.
• You can refinance to eliminate PMI if home values have increased and your new loan amount will be 80% loan to value, or less.

Can You Avoid PMI?
Yes, if you can put 10% down and then obtain a 10% second loan, referred to a piggy back, or 80/10/10 financing. The second loan will be issued concurrently with the first mortgage.

Below is a standard PMI Rate Chart effective June 4, 2018

standard PMI Rate Chart effective June 4, 2018 BPMI-premiums
Scot Presley - Presley Financial