You may have heard about it, but as a first-time homebuyer, you may have questions about private mortgage insurance (PMI).
Let's start with who pays for it.
The most common arrangement is for the borrower to include PMI payments in their monthly mortgage. You'll learn about this cost at the time you get a loan when it's calculated into the monthly mortgage payment estimate.
PMI is required when the borrower isn't able to afford a substantial down payment. Because the lender is taking on a large stake, PMI is built-in loan protection. This protection is designed in the event borrowers are unable to make regular mortgage payments.
It's important to note the amount of your loan and its balance factors. For homeowners who did not make a 20 percent down payment on the home can expect to pay the PMI premium.
Keep in close contact with your lender to learn more specifics. These numbers can change with the status of the market and your home's value. Through the course of payments, there will be a time to start a conversation about lifting the PMI premium.
Once homeowners reach 20 percent equity, they are eligible to have the PMI dropped from the monthly mortgage payment. The threshold of 20 percent equity needed to remove PMI is based on the original home valuation versus the current market value of the home.