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Understanding Real Estate: What is PMI?
What is Private Mortgage Insurance?
We all know that buying a house has its challenges, and the terminology alone is enough to make your head swim. One of the terms our REALTORS® often get asked about is PMI—Private Mortgage Insurance. What is it? How does it work? What does it cost? Do I really need it? Is it tax deductible? We're here to answer all your questions for you.
PMI Basics
Private mortgage insurance often referred to as PMI is a fairly common type of mortgage insurance. Like most mortgage insurance, PMI exists to protect the lender in case you are no longer able to make payments on your loan. PMI is arranged by the lender through a private insurance company and is usually required if you are buying a home with a conventional loan, especially if you are putting down less than the recommended 20% down payment.
How Much is PMI?
PMI fees vary depending on a number of factors, including the size of your down payment, and your credit score. Generally speaking, PMI fees usually add up to around 0.3% to 1.5% of the original loan amount each year.
Paying for PMI
There are several ways that you might pay for PMI—some lenders offer multiple options, and some don't—and it's important to understand your options before you commit to a mortgage. The most common option is a monthly premium, which is added on to your mortgage payment. Sometimes, lenders offer the option of paying for PMI as a one-time upfront premium, or a combination of an upfront and recurring payments.
Is PMI Tax Deductible?
There's good news for anyone interested in buying a home in 2018: private mortgage insurance is tax deductible (for those who meet the requirements).The mortgage insurance deduction is one of several allowable claims that had originally expired on December 31, 2016, but has been extended to 2018, providing what could potentially be a big money-saver for homeowners.
Things To Consider
PMI insurance has its pros and cons. On one hand, it can help you qualify for a loan that you might not otherwise be able to get. On the other hand, it will likely cause you to end up paying more in the long run. Talk to your agent to weigh your options. Working to improve your credit score may reduce the amount you have to pay, and you may be able to avoid paying for PMI altogether if you are able to save up the recommended 20% down payment.
If you have any more questions while you're searching for Mansfield homes for sale, we have answers for you. Contact us at Haring Realty today to learn all about how we can help you make your dream home a reality.
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