What Is PMI? Do You Have to Put 20% Down on a Home?

Private mortgage insurance is required by most lenders if you put less than 20% down on your home. Many people have an aversion to this extra cost, but you shouldn’t be scared of PMI! With PMI, you get the ability to put as little as 3-5% down on a home, which is the only way many people are able to buy homes at all. Remember, as long as you can comfortably afford the monthly payment now, you can refinance later for better terms.

In many cases, PMI is an affordable amount (less than $100/month), and if you have a conventional loan it is a temporary cost. FHA loans are considered riskier and require mortgage insurance for the life of the loan. However, sometimes this still makes sense. You should weigh your options with your loan officer.

With a conventional loan, once you’ve made enough payments to hit 20% equity, your PMI automatically falls off. With appreciation and home improvements, you can usually petition to have your PMI knocked off much sooner. Sometimes the bank will make you pay $400-$700 for an appraisal, but this upfront cost is usually worth the savings in future PMI payments. Some loans will require you to wait a certain amount of time before you can petition to have your PMI removed (1-2 years typically).

 Because home prices are relatively high, I advise many first-time homebuyers to buy with the minimum down payment. This helps them get their feet in the door of the home market and stabilize their living expenses.

 If you’re thinking of buying within the next 5 years, I recommend talking to a lender now to talk through your options. Reach out for a list of reputable, local lenders who can help you strategize.