If you’re buying a home for sale in Scottsdale or in one of its nearby communities, you probably need to take out a mortgage loan – most people do. Typically, you’ll need to come up with a 20 percent down payment when you apply for a mortgage loan. If you don’t, you’ll most likely have to pay for private mortgage insurance, or PMI.
What is Private Mortgage Insurance?
The term private mortgage insurance refers to a type of insurance that lenders often require borrowers to purchase. This insurance protects the lender from losing money if the borrower doesn’t make his or her house payments.
Lenders look at a 20 percent down payment as an investment on your part. It shows that you’re willing to put up one-fifth of the home’s purchase price using your own money. If you can’t do that, then lenders try to protect their own investments in your house by requiring you to pay for private mortgage insurance, which is also commonly called PMI.
How Much Does PMI Cost?
Private mortgage insurance fees generally range between 0.3 percent and 1.5 percent of the original loan amount per year. Unfortunately, you don’t get to shop for PMI. If your lender requires it, your lender will choose where it comes from and automatically add it to your monthly mortgage payment. Your PMI won’t change as you pay off your house – it stays the same until you no longer need it.
When Do You Stop Paying PMI?
Typically, you stop paying PMI as soon as you’ve built 20 percent equity in your home. You can contact your lender to stop the PMI payments – but there’s one exception: If you borrowed with an FHA loan after June 3, 2013, your PMI is never cancelled. You can only get rid of it by refinancing with a conventional loan.
This table shows how PMI is canceled based on the type of loan you used.
How PMI is Canceled
Type of Loan
How it Works
|Conventional loan after July 29, 1999 with no missed payments in the past 12 months||Automatically canceled once equity reaches 22%, or when the borrower requests it after equity reaches 20%|
|Conventional loan after July 29, 1999 with payments missed in the past 12 months||Automatically after 15 years if you have a 30-year loan|
|Conventional loan before July 29, 1999||Borrower can request cancellation|
|FHA loan with a 10% or higher down payment||Automatically after 11 years|
|FHA loan with less than 10% down||Borrower must refinance as a conventional loan|
This is just a guideline, though. Your lender may have different policies, so make sure you ask before you sign a mortgage loan agreement.
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Realtor | Founder
The Matheson Team
RE/MAX Fine Properties
21000 N. Pima Rd., #100, Scottsdale, AZ 85255