MANY FIRST TIME HOMEOWNERS WONDER WHAT PMI STANDS FOR, AND WHAT IT’S FOR.
Saving up for the down payment on your home is one of the most difficult things to achieve, especially for first time homebuyers. For the buyers who aren’t able to make a down payment of 20%, Private Mortgage Insurance (PMI) is required by most lenders, but is not required when working with LSB as part of our “First Time” programs – but what exactly is it?
PMI is an insurance policy that protects the lender in case you are unable to maintain making payments. Financial institutions are much more likely to approve your mortgage without the full 20% down payment when you’re paying Private Mortgage Insurance since it’s there to protect them in the event of default.
HOW MUCH DOES PMI COST?
For other lenders, the cost of PMI is determined by several factors including your down payment amount, credit score, the type of interest rate (fixed or adjustable), and/or whether you’re using the loan to refinance an existing mortgage loan or purchase a new home.
Typically, the premiums for PMI can range from $30-$70 per month for every $100,000 borrowed. So if you bought a home and have a loan amount of $300,000, you could pay around $150 per month for private mortgage insurance, according to Zillow®.
Most PMI is paid monthly, but occasionally it can be paid in full for a single premium paid at your closing or financed into your mortgage loan.
HOW LONG DO I HAVE TO PAY PMI?
As long as you are current on your payments, once you get to about 80% LTV (loan to value) of the original value and are current on your mortgage payments, financial institutions are required to cancel your PMI. Using the same $300,000 loan amount example above, that would mean once your loan balance reaches $240,000 PMI can be canceled (and you’ll save the $150 monthly expense).
Using an Amortization Schedule is the easiest way to see how long it would take you to get to this stage in your payment process. Simply enter the information in the four fields provided, click the check mark to show payment schedule, and then see how many payments it will take for you to reach 80% of the original value (purchase price x 0.80).
HOW CAN I AVOID PAYING PMI?
We’re glad you asked! One of the benefits of choosing Lisle Savings Bank for your home financing is the fact that we do not require you to pay PMI when not meeting the 20% down payment requirement. As a portfolio lender, we can design loan programs like our First Time Homebuyer Program and First Time Homeowner Refinance Program that waives the requirement of paying PMI with a down payment of only 10% or at least 10% in equity.
So what are you waiting for? Stop by one of our locations to visit with a mortgage lender, or better yet… you can complete your mortgage application conveniently online. However you want to proceed, we’re here for you to help with your home buying needs (and avoid the additional expense of PMI)!