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What Is PMI and Will I Need It?

If you’re thinking about buying a home, you’ve probably heard the term PMI. But what is PMI, and why does it matter? Let’s break it down so you can feel confident, informed and fully in control of your homebuying journey.

What Is PMI?

PMI stands for Private Mortgage Insurance. It’s a type of insurance that protects your lender — not you — if you stop making payments on your mortgage.You’ll usually need to pay PMI if you put down less than 20% on your home. It’s a way for lenders to reduce their risk when offering loans with smaller down payments.

How Much Does PMI Cost?

PMI typically costs between 0.5% and 1.5% of your loan amount per year. That means if you borrow $250,000, you could pay around $1,250 to $3,750 per year — or about $100 to $300 per month.The exact amount depends on your loan size, credit score and down payment — but the better understanding you have on these factors means the more control and clarity you have over your costs. When you're figuring out your budget for a monthly mortgage payment, make sure you're adding in the potential cost of PMI.

How Long Do You Pay PMI on a Home Loan?

The good news? PMI doesn’t last forever.Once you’ve built up enough equity (typically when you reach 20%), you can wave goodbye to PMI for good. This can happen in a few ways:
  • You make regular payments, and your loan balance drops.
  • Your home value increases over time.
  • You make extra payments toward your principal.
Once you reach 20% equity, you can request to cancel PMI. When you hit 22%, your lender is required by law to remove it automatically, as long as your payments are current.PMI is not forever, just a steppingstone in your journey to homeownership.

Can You Avoid PMI?

Yes, you can! If paying PMI isn’t the best choice for you, here are a few ways to avoid it:
  • Put down 20% or more when you buy your home.
  • Consider an Adjustable-Rate Mortgage (ARM), as some require only 10% down to avoid PMI.
  • Look into lender-paid PMI (but watch for higher interest rates).
  • Explore loan programs that don’t require PMI, like VA loans (for eligible veterans).
Not sure what path is right for you? Summit can help you explore your options and find the best fit for your financial journey.

Let’s Make Homeownership Happen

Whether you’re just starting to explore or ready to apply, Summit Credit Union is here to support you every step of the way. We’ll guide you through the mortgage process, explain your options and help you feel confident in your decisions.Use our to estimate how much home you can afford, including PMI.Explore more helpful resources:
  • Want the basics made simple? Check out our page.
  • — includes smart insights for bold go-getters.
  • to receive personalized guidance from someone who gets you.

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