Wondering what primary mortgage insurance is? As a prospective home buyer in the Ocala area, you may be wondering about the role of primary mortgage insurance (PMI) in the home-buying process. Understanding how PMI works and what it entails is an important part of homeownership preparation. 

In this blog post, Ocala realtor Scott Coldwell and the professionals at Your Home Sold Guaranteed Realty - Coldwell Real Estate Services will discuss what primary mortgage insurance is and how it impacts home buyers.

Key Takeaways:

• Primary mortgage insurance (PMI) protects the lender, not the borrower, when a down payment is less than 20%.
• PMI typically costs 0.5% to 1.5% of the original loan amount per year.
• There are several payment options for PMI, including monthly, upfront, and lender-paid.
• Lender usually remove PMI once the loan-to-value ratio reaches 78 to 80%.

What is Primary Mortgage Insurance?

Primary mortgage insurance, or PMI, is a type of insurance that’s required on conventional mortgage loans when the down payment is less than 20% of the home’s value. Its purpose is to protect the lender in case you, as the borrower, default on the loan.

Unlike homeowner’s insurance, which protects the homeowner, PMI solely benefits the lender. Top Ocala realtor Scott Coldwell explains,

“PMI provides assurance to the lender that they’ll recoup their investment if the borrower is unable to make their mortgage payments. It’s an added layer of protection for the lender, not the home buyer.”

Costs and Payment Options for PMI

The cost of PMI varies based on factors like your credit score, down payment amount, and loan size. On average, PMI costs between 0.5% to 1.5% of the original loan amount per year.

So on a $300,000 mortgage, the PMI could range from $1,500 to $4,500 annually.

You can pay PMI several different ways:

• Monthly premium: The most common approach, where the PMI cost is added to your regular monthly mortgage payment.
• Upfront premium: The full PMI amount is paid at closing, either in cash or rolled into the loan.
• Split premium: A combination of an upfront payment and a lower monthly premium.
• Lender-paid: The lender covers the PMI cost, often in exchange for a slightly higher interest rate.

Coldwell advises,

“Borrowers should carefully compare the different PMI payment options to determine the best fit for their budget and financial situation.”

Removing Primary Mortgage Insurance

PMI is not a permanent expense– it can typically be removed once the loan-to-value (LTV) ratio reaches 78 to 80% of the home’s value. Borrowers have the right to request PMI cancellation once their LTV hits 80%. In many cases, PMI will automatically drop off the loan once the LTV reaches 78%.

To get PMI removed, homeowners will need to provide documentation to their lender demonstrating the current appraised value of the home.

Working with your lender to understand the PMI removal process is important. That way, you can time it properly and avoid paying for PMI longer than necessary.

Role of PMI in Home Buying

While PMI does add to the overall cost of a mortgage, it serves an important purpose in the home-buying process. Coldwell notes,

“PMI allows buyers to qualify for a loan with a smaller down payment, which can be a game-changer for first-time or lower-income homebuyers. Without PMI, many would-be buyers would be priced out of the market entirely.”

Ultimately, understanding the ins and outs of primary mortgage insurance is a critical step in preparing to purchase a home. Working closely with your lender and a knowledgeable Ocala real estate professional can help you navigate the PMI requirements effectively.

Our Ocala Real Estate Team Makes it Easy to Buy a Home

At Your Home Sold Guaranteed Realty - Coldwell Real Estate Services, Scott Coldwell and our team have worked with thousands of home buyers in Ocala and North Central Florida.

We know exactly what to do to guide our clients through closing and into their dream homes.  Our experience is only one reason we’re the best realtor in Ocala. In addition, we offer unique buyer guarantees that make buying a home risk-free, like our Buy it Back Guarantee.

To learn more about working with Your Home Sold Guaranteed Realty - Coldwell Real Estate Services to buy a house in Ocala or the surrounding areas, call 352-290-3512, or fill out the form on this page.

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