Understanding PMI: What It Is and How to Avoid It

Private Mortgage Insurance (PMI) is a cost many home buyers encounter, but understanding how it works and how to eliminate it can save you money over the life of your loan. At Elevated Home Loans, we’re committed to helping you make informed financial decisions. Here’s everything you need to know about PMI.

What Is PMI?

PMI, or Private Mortgage Insurance, is a type of insurance that protects lenders if a borrower defaults on their mortgage. It is typically required for conventional loans when the down payment is less than 20% of the home’s purchase price.

PMI does not provide any direct benefit to the borrower, but it allows homebuyers to purchase a home with a lower down payment. The cost of PMI varies based on your loan amount, credit score, and lender requirements, usually ranging between 0.5% to 1.5% of the loan amount annually. For more details on PMI requirements, you can refer to Freddie Mac’s official guide.

Looking for ways to reduce mortgage costs? Contact us today to explore your options.

How Can I Avoid Paying PMI?

While PMI is common, there are ways to avoid it, including:

• Making a 20% Down Payment: The simplest way to avoid PMI is to put at least 20% down when purchasing a home.
• Choosing a VA Loan: If you’re an eligible veteran, active-duty service member, or a qualifying spouse, a VA loan allows you to buy a home with no PMI and no down payment.
• Using a Lender-Paid Mortgage Insurance (LPMI) Option: Some lenders offer an option where they pay the PMI in exchange for a slightly higher interest rate.
• Considering a Piggyback Loan: A 80-10-10 loan structure involves taking out a second mortgage to cover part of the down payment, avoiding PMI altogether.

For more information on avoiding PMI and its eligibility requirements, check out Fannie Mae’s guide.

Not sure which option is best for you? Let’s discuss your best strategy—schedule a consultation today.

How Long Do I Have to Pay PMI?

If you’re already paying PMI, the good news is that it doesn’t last forever. PMI is automatically canceled when:

• You reach 78% loan-to-value (LTV) based on your original loan terms.
• You’ve made on-time payments and your home’s equity reaches 20% (you can request cancellation sooner).
• Your loan reaches its midpoint term (e.g., year 15 of a 30-year mortgage), even if the LTV is still above 78%.

However, if your home’s value has appreciated, you may be able to remove PMI earlier by getting a home appraisal. The Consumer Financial Protection Bureau (CFPB) provides detailed guidelines on PMI cancellation and your rights as a borrower.

Are There Options to Remove PMI From My Existing Mortgage?

Yes! If you’re currently paying PMI, you may be able to remove it sooner by:

• Refinancing Your Loan: If your home’s value has increased significantly, refinancing may allow you to secure a new loan without PMI.
• Requesting a PMI Cancellation: If you believe your loan balance is at or below 80% of the home’s current value, you can request your lender to remove PMI. You may need to provide an appraisal.
• Making Extra Payments: Paying down your mortgage faster reduces your loan balance, helping you reach the required equity level sooner.

For official guidelines on PMI removal, visit the Federal Housing Finance Agency (FHFA).

Want to explore PMI removal options? Speak with an expert today.

Take Control of Your Mortgage with Elevated Home Loans

Understanding PMI can help you make smarter financial decisions when buying or refinancing a home. At Elevated Home Loans, we work with you to find the best mortgage solutions that align with your goals and budget.

Have questions about PMI? Contact us today to discuss your mortgage options!