What You Need to Know About Home Loans & Mortgage Insurance

Will you have to pay private mortgage insurance if you take out a home loan?

As with other business sectors, the lending industry has its own library of jargon. Understanding some of the lingo can be the difference between a good or bad home loan experience – and private mortgage insurance, or PMI, is one of the terms that can be a little confusing for Utah homebuyers. We’re here to set the record straight, and after reading the following, you’ll have a much better idea of how it works.

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What is Private Mortgage Insurance?

PMI is a form of insurance that conventional mortgage lenders typically require when borrowers make a down payment of less than 20 percent of the purchase price of a home. The coverage is designed to help lenders recoup more of the money they’re owed in the event of a default on a home loan.

Is PMI Always Paid by the Borrower?

In most cases, the insurance premium is included in the monthly loan payment. Making a one-time upfront payment may be an option with certain lenders, or borrowers can go with lender-paid mortgage insurance (LPMI). With LMPI, the expense is built into the home loan – but be aware, going this route may mean accepting a higher interest rate.

How Much is the Insurance Premium?

The cost of PMI for a conventional home loan depends upon several factors, including the mortgage term and type, the down payment amount and the financial strength of the borrower. Most Utah homebuyers pay somewhere between 0.55 and 2.25 percent of the original loan balance each year, with the cost is split into 12 monthly payments.

Can You Avoid Paying PMI?

If you take out a conventional loan and put down at least 20 percent of a home’s price, you won’t ever be obligated to pay PMI. If that’s not an option, you can refinance your mortgage once you have that much in home equity, and the extra cost will no longer be your concern.

Alternatively, you might want to consider a VA loan or USDA instead of conventional home financing. If you qualify, taking out a mortgage backed by the U.S. Department of Veterans Affairs or the U.S. Department of Agriculture will allow you to avoid paying PMI, as these lending programs don’t come with a PMI requirement.

Get Expert Help Exploring Your Home Loan Options

Private mortgage insurance is an additional expense no one wants, and since PMI provides you with no benefit, not having to pay would be ideal. To learn about the loan programs you may qualify for and how you might be able to avoid the PMI requirement, turn to the mortgage professionals at Intercap Lending.

We offer a variety of lending options – including conventional home loans, VA loans, USDA loans, FHA loans and more – and we’ll help you pinpoint the most favorable financing solution. For more on private mortgage insurance and home loans for Utah borrowers, contact Intercap Lending today.