What is PMI? Here is my PMI explanation. When your loan officer talks about PMI they mean Private Mortgage Insurance.
Primary Mortgage Insurance (PMI) is required by the lender if don’t put 20% down. Lenders require PMI if you don’t have 20% equity in the house when you purchase or refinance the home.
Why do banks require PMI? It is fairly simple there is a higher default rate on loans the less people put down.
- At 20% a certain number of people default on a loan
- but at 15% more people go into foreclosure
- at 10% even more
So banks charge for PMI based on how much you put down. The historical facts show what percentage go into default. So the PMI covers the bank’s losses in case of default. You the borrower pay the PMI each month. You are paying the insurance premium each month when you pay PMI.
It is just the way it is. If you don’t have 20% you are going to be paying PMI. So the bottom line is you pay PMI to protect the bank from the loss in case you go into foreclosure and the bank has to sell the house for less.
I hope this explanation of PMI helped you. Have a great night!
Russ Ravary your Metro Detroit real estate agent
Homes for sale in Oakland County MI $250,000 - $300,000