Among the many different real estate terms is one called PMI. While many people may know what PMI is referring to prior to purchasing a home, for others, the term brings up many unanswered questions, some as simple as, what is it?
PMI is an abbreviation for Private Mortgage Insurance. This insurance is a fee that many homeowners will be required to pay within their monthly mortgage amount and can range in price pending on the value of your home as well as the lender and even your down payment amount. If you put less than 20% down on a home, then you can assume that you will be paying a PMI premium within your mortgage.
The cost of PMI as mentioned above can vary, however, as a general rule of thumb you can expect to pay between 0.55%-2.25% of the loan amount annually, although it is rare for the percentage to go above 1.55%. This is a large range so it is important to understand what your payments will be to determine if you are comfortable moving forward with a home loan that will require PMI as a payment. This premium is put in place to help protect the lender and not you as the buyer/owner. The exact percentage you will pay will vary on a few key details including your credit score as well as the amount you are borrowing. In general, you can expect to pay between $75-$125 monthly per $100,000 borrowed.
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While you will be required to pay your premium each month with your mortgage, rest assured it is possible to eliminate the cost. Your PMI payment will not go toward your interest, principal balances or help you build equity in your home which is why many homeowners either choose to put 20% down on their home purchase or try to eliminate their PMI fee after they’ve gained equity and paid down their principal balances.
To eliminate the premium all together you need to have paid down your mortgage to where you have more than 20% equity in the property. For example, a $300,000 home would have to have a balance of $240,000 or less prior to your premium being removed. Once you have 22% equity within your home oftentimes your PMI will drop off of your loan automatically, however in some cases you may choose to re-finance your loan in order to have the premium removed earlier, should you home have risen in price/equity faster than expected.
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If you’re currently searching for a new home, are ready to sell your home and are need of a qualified seller’s agent, or if you have any questions regarding Camano Island Real Estate, please feel free to contact our office at any time.