Academy Mortgage continues to answer home buyers’ top 10 questions about mortgages in this week’s Mortgage Minutes. In this edition, Academy Mortgage answers the commonly-asked question, “Will I have to pay private mortgage insurance?”
Private mortgage insurance, also known as PMI, is dependent on the type of loan you receive and the down payment amount. Some loans require no PMI, such as the VA loan. However, most loans will require some form of mortgage insurance when you place less than 20 percent down on the cost of your home.
FHA loans have an upfront mortgage insurance that’s automatically financed into your loan, as well as a monthly insurance that pays towards your annual renewal. Conventional loans also require PMI, but the amount of the insurance is dependent upon how large the down payment is. For example, buyers who place five percent down will pay a much higher PMI than buyer’s who place 10 or 15 percent down.
Another question buyers often ask is whether or not they will ever be able to stop paying the PMI. Once you have reached 20 percent equity in your home, you can request that your lender drop the insurance. This equity can be reached through paying down your mortgage and by the property increasing in value. Once you have reached an 80 percent loan balance, the home must be appraised and the report provided to the lender. Generally, as long as you’re still the primary owner and occupant of the home and assuming you’ve made all of your payments on time, the lender will agree to drop the PMI.