Explore PMI's role in home loans, costs, cancellation rights, and how it makes homeownership accessible with less than 20% down.
Private Mortgage Insurance (PMI) is a type of insurance that borrowers might be required to purchase when they obtain a mortgage with a down payment of less than 20% of the home's purchase price. PMI protects the lender not the borrower in case the borrower defaults on the loan. Conventional loans are a common requirement to safeguard the lender's investment, given the higher risk associated with lower down payment loans.
Understanding PMI is crucial for potential homebuyers, especially those who cannot make a large down payment. It's important to consider the long-term costs associated with PMI and explore all available options to minimize or eliminate PMI costs over the life of the loan.
Refinancing your mortgage may affect your PMI status. If your home has appreciated or you've paid down the principal enough to increase your equity to more than 20%, you may be able to eliminate PMI with a new loan.
PMI does not offer protection or financial assistance to borrowers who cannot make their mortgage payments; it only protects the lender.
Generally, the lender selects the PMI provider, but borrowers can discuss PMI options with their lender. Some lenders may allow borrowers to choose from approved PMI companies, though this is less common.
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