Borrower Paid PMI

couple looks for no PMI loan optionsHow does Borrower-Paid PMI work?

When a homebuyer cannot afford to make a 20% down payment on a new home purchase, lenders will require the borrower to pay private mortgage insurance (PMI) until they build 20% equity in the property. Mortgage insurance is an extra monthly fee added to a homebuyers loan to protect the lender against a borrower default. This mortgage insurance does not protect the borrower in any way or cover damages to the property. However, private mortgage insurance does cost the borrower an additional half-a-percent (.5%) to one-percent (1%) annually.

One option to avoid monthly payments is to pay an upfront fee. This is referred to as borrower-paid PMI. While we do offer this option, we only recommend this approach when housing values are not rising (or, said differently, when house prices are in a flat to down market).  If you expect your house to appreciate to 20% equity in the foreseeable future, this is not a good option for you.  If you don’t expect your house to appreciate or if house values are going down in your area, you can pay an upfront fee to remove the PMI from your loan instead of paying monthly.

If you want to get a loan with no PMI or would like a personalized recommendation based on your current situation, contact our mortgage experts or click here to see other options on how you can avoid PMI.