Private Mortgage Insurance (PMI) is a mandatory insurance policy for conventional loans which insures a lender against loss in the event that the homeowner stops making payments on a mortgage loan. Mortgage insurance can help people become homeowners who might not otherwise qualify if they don’t have 20% to put down on a home.

When Is Private Mortgage Insurance Required?

As mentioned above, PMI is required if the borrower has less than 20 percent to put down for their down payment.  PMI is typically required when you are utilizing a conventional home loan or when refinancing.

Suggested Program: Arizona Home Plus Home Loan Program

Conventional loans are loans which are backed by Fannie Mae or Freddie Mac and they’re available via all major lenders including Wells Fargo, Bank of America, Quicken, JPMorgan Chase, and others.

PMI is for the lender, not the homeowner, but the homeowner pays for the insurance.  It’s the homeowner’s insuring of the lender against its own default. Should the homeowner ever stop paying on its mortgage, the insurance policy gets “cashed”, and the bank gets paid for its losses.   

Lenders are more likely to offer a low down payment, high-ratio mortgage loans with borrows who understand that they have to pay for PMI. That’s good news if you need to buy a home with anything less than 20% down.  Remember, as a borrower, the less you put down for a down payment on a conventional loan, the larger your mortgage insurance policy will be.

Ways to Get Rid of PMI

You are not “stuck” paying PMI for the entirety of the life of the loan, once you can prove that your home has equity (up to 20 percent) you have the right to ask your lender to remove your PMI.  If you are interested in removing your PMI you can request a home appraisal to verify you have 20 percent equity.

You also have the right to request that your servicer cancel PMI when you have reached the date when the principal balance of your mortgage is scheduled to fall to 78 percent of the homes’ original value.  You can find out what that date is on the PMI disclosure form you received when you took on your mortgage.

Many times the payments can be canceled immediately.

Lenders are required by law to cancel private mortgage insurance once you pay down the principal to 78% of your acquisition price. If you have any questions on PMI or need help with purchasing a home please contact us.

The Certo Team
55 N. Arizona Place Suite #103
Chandler, AZ 85225
602-429-6789