{"id":3694,"date":"2024-09-13T12:04:14","date_gmt":"2024-09-13T17:04:14","guid":{"rendered":"https:\/\/tomo.com\/blog\/?p=3694"},"modified":"2025-02-10T13:30:57","modified_gmt":"2025-02-10T18:30:57","slug":"what-is-pmi","status":"publish","type":"post","link":"https:\/\/tomo.com\/blog\/what-is-pmi\/","title":{"rendered":"What is PMI?"},"content":{"rendered":"\n<p>When you put down less than 20% on your new home, every lender everywhere is required to charge for PMI, or Private Mortgage Insurance on a conventional loan. It serves as a safety net for the lender, allowing you to secure a mortgage with a smaller down payment. Essentially, it\u2019s a form of insurance that helps make homeownership more accessible with less upfront cash.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link wp-element-button\" href=\"https:\/\/tomo.com\/mortgage\/rates\/?utm_source=tomo_blog\">Explore today&#8217;s rates<\/a><\/div>\n<\/div>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">How does PMI affect my monthly mortgage payment?<\/h3>\n\n\n\n<p><\/p>\n\n\n\n<p>PMI is an additional cost added to your monthly <a href=\"https:\/\/tomo.com\/blog\/what-are-the-steps-to-getting-a-mortgage\/\" title=\"mortgage\">mortgage<\/a> payment, generally ranging from 0.3% to 1.5% of your loan amount per year. For a $450,000 loan, this means PMI could range from $1,350 to $6,750 annually, or approximately $112.50 to $562.50 per month. <a href=\"https:\/\/smartasset.com\/mortgage\/mortgage-calculator#4RNoHNPvWx\">This calculator from SmartAsset<\/a> allows you to play around with how your interest rate, as well as your homeowner\u2019s insurance and other fees will influence your monthly payment.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">What are the different types of PMI?<\/h3>\n\n\n\n<p><\/p>\n\n\n\n<p>PMI comes in a few varieties:&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Borrower-Paid PMI (BPMI): You pay it monthly with your mortgage payment.<\/li>\n\n\n\n<li>Single Premium PMI: Pay it all upfront when you close. Ouch, but no monthly charges.<\/li>\n\n\n\n<li>Split Premium PMI: A combo of upfront and monthly payments.<\/li>\n\n\n\n<li>Lender-Paid PMI (LPMI): The lender covers it, but your interest rate goes up.<\/li>\n<\/ul>\n\n\n\n<p>So, while the 3-2-1 buydown can give you a nice breather at the start, make sure you know what is in store!<\/p>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Does PMI apply to all types of loans?<\/h3>\n\n\n\n<p><\/p>\n\n\n\n<p>Nope, PMI is all about conventional loans. If you\u2019re rocking an <a href=\"https:\/\/tomo.com\/blog\/what-are-fha-loans-and-conventional-loans\/\" title=\"FHA\">FHA<\/a> or VA loan, you\u2019ve got different insurance rules\u2014FHA has MIPs and VA has a funding fee.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Why do PMI costs range?<\/h3>\n\n\n\n<p><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Loan-to-Value Ratio (LTV)<\/strong>: The higher the LTV (the size of your loan compared to the value of your home), the higher the PMI rate. A higher risk of default generally leads to higher PMI costs.<\/li>\n\n\n\n<li><strong>Credit Score<\/strong>: Your <a href=\"https:\/\/tomo.com\/blog\/what-credit-score-do-i-need-to-buy-a-home\/\" title=\"credit score\">credit score<\/a> impacts the PMI rate. A lower credit score can lead to higher PMI rates because it signals higher risk to the lender.<\/li>\n\n\n\n<li><strong>Loan Type<\/strong>: Different types of loans may have different PMI rates. Conventional loans often have PMI rates based on risk, while other types of loans might have different structures.<\/li>\n\n\n\n<li><strong>Down Payment Amount<\/strong>: The size of your <a href=\"https:\/\/tomo.com\/blog\/what-should-i-put-down-for-my-down-payment\/\" title=\"down payment\">down payment<\/a> influences the PMI cost. Larger down payments reduce the amount of PMI needed, as they decrease the loan&#8217;s risk.<\/li>\n\n\n\n<li><strong>Loan Term<\/strong>: The <a href=\"https:\/\/tomo.com\/blog\/15-year-or-30-year-mortgage\/\" title=\"length of your mortgage\">length of your mortgage<\/a> can affect PMI rates. Longer terms might have different PMI costs compared to shorter terms.<\/li>\n\n\n\n<li><strong>Lender\u2019s Policies<\/strong>: Each lender has its own criteria for determining PMI rates, which can lead to variations in costs across different lenders.<\/li>\n<\/ul>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Can I get rid of PMI early?<\/h3>\n\n\n\n<p><\/p>\n\n\n\n<p>Yes, you can ditch PMI early if you\u2019ve built up enough equity\u2014usually 20% or more. Just ask your lender to drop it, but be prepared to show off proof of your home\u2019s value, and you might need an appraisal. If you\u2019ve been paying down your mortgage and the market\u2019s on your side, you could wave goodbye to PMI sooner than expected.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>Scenario<\/td><td>Initial home value<\/td><td>Down payment<\/td><td>Initial mortgage balance<\/td><td>Current home value<\/td><td>Current Mortgage Balance<\/td><td>Current equity<\/td><td>Equity percentage<\/td><\/tr><tr><td>Home value increases<\/td><td>$250,000<\/td><td>$25,000 (10%)<\/td><td>$225,000<\/td><td>$275,000<\/td><td>$210,000<\/td><td>$65,000<\/td><td>23.6%<\/td><\/tr><tr><td>Home value decreases<\/td><td>$250,000<\/td><td>$25,000 (10%)<\/td><td>$225,000<\/td><td>$230,000<\/td><td>$215,000<\/td><td>$15,000<\/td><td>6.5%<\/td><\/tr><\/tbody><\/table><figcaption class=\"wp-element-caption\">The chart shows how home value changes impact when you can ditch PMI. If your home value goes up, like from $250,000 to $275,000, you quickly build equity and can drop PMI sooner. This saves you money and cuts down your payments faster. <br><br>But if your home value drops, like from $250,000 to $230,000, you have less equity, which means you\u2019ll be stuck with PMI longer. So, higher home values mean quicker PMI removal, while lower values keep you paying PMI until you either build more equity or home values rise again.<\/figcaption><\/figure>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">What documentation do I need for PMI removal?<\/h3>\n\n\n\n<p><\/p>\n\n\n\n<p>To get rid of PMI, you\u2019ll need:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Proof your home\u2019s value (think appraisal)<\/li>\n\n\n\n<li>Evidence you\u2019ve got at least 20% equity<\/li>\n\n\n\n<li>Documentation showing you\u2019ve made your mortgage payments on time<\/li>\n<\/ul>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">How long does the PMI removal process take?<\/h3>\n\n\n\n<p><\/p>\n\n\n\n<p>Be prepared for a bit of a wait. Once you\u2019ve submitted your request and paperwork, it could take a few weeks to several months. If an appraisal is needed, add some extra time to the mix.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Is PMI at some lenders higher than others?<\/h3>\n\n\n\n<p><\/p>\n\n\n\n<p>At Tomo Mortgage, we work with three PMI companies, so we can offer you some discounts. While PMI (Private Mortgage Insurance) is typically not something borrowers shop for directly, the cost of PMI can vary between lenders and loan programs. Some lenders use different PMI providers, which can affect the price. Additionally, PMI costs are influenced by factors like your credit score, loan-to-value ratio, and loan term.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">How to shop around for PMI?&nbsp;<\/h3>\n\n\n\n<p><\/p>\n\n\n\n<p>PMI (Private Mortgage Insurance) isn\u2019t something you can shop for like a new TV or a car. It\u2019s insurance that protects the lender, not you. Here\u2019s how it works: your lender will gather quotes from different PMI providers and choose the one offering the lowest monthly premium. Once you\u2019ve got PMI, the rate is fixed and won\u2019t fluctuate for the duration of your loan.<\/p>\n\n\n<div style=\"padding-top:var(--wp--preset--spacing--30);padding-bottom:var(--wp--preset--spacing--30);padding-left:var(--wp--preset--spacing--30);padding-right:var(--wp--preset--spacing--30);margin-top:var(--wp--preset--spacing--30);margin-bottom:var(--wp--preset--spacing--30);margin-left:0;margin-right:0;\" class=\"has-link-color wp-elements-c54b177fd5d2f341f8967a20726f2ac0 wp-block-post-author has-text-color has-contrast-color has-background has-tertiary-background-color has-large-font-size\"><div class=\"wp-block-post-author__content\"><p class=\"wp-block-post-author__name\"><a href=\"https:\/\/tomo.com\/blog\/author\/clairegtomonetworks-com\/\" target=\"_self\">Claire Gallaudet<\/a><\/p><p class=\"wp-block-post-author__bio\">Claire is a Mortgage Analyst at Tomo, where she explores the data and trends shaping the housing market. She is especially interested in how economic forces impact homebuyers. A Seattle native, she now lives in Austin, where she balances analysis and communications with teaching yoga and walks around the lake with her dog.<\/p><\/div><\/div>\n\n\n<p>If you&#8217;re ready to start your journey to homeownership, <a href=\"https:\/\/tomo.com\/mortgage\/app\/preapproval\" title=\"\">get pre approved with Tomo Mortgage today.<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>When you put down less than 20% on your new home, every lender everywhere is required to charge for PMI, or Private Mortgage Insurance on a conventional loan. It serves as a safety net for the lender, allowing you to secure a mortgage with a smaller down payment. Essentially, it\u2019s a form of insurance that [&hellip;]<\/p>\n","protected":false},"author":31,"featured_media":3748,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"","fifu_image_alt":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[38],"tags":[],"class_list":["post-3694","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mortgage-dictionary"],"aioseo_notices":[],"jetpack_featured_media_url":"https:\/\/tomo.com\/blog\/wp-content\/uploads\/2024\/09\/understanding-pmi-tomo-mortgage-jpg.webp","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/posts\/3694","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/users\/31"}],"replies":[{"embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/comments?post=3694"}],"version-history":[{"count":3,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/posts\/3694\/revisions"}],"predecessor-version":[{"id":3992,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/posts\/3694\/revisions\/3992"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/media\/3748"}],"wp:attachment":[{"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/media?parent=3694"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/categories?post=3694"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/tags?post=3694"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}