From the course: Personal Finance Concepts Everyone Should Know

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What's "PMI" and how to avoid it

What's "PMI" and how to avoid it

From the course: Personal Finance Concepts Everyone Should Know

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What's "PMI" and how to avoid it

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- If you want to buy a house but you can't put down 20%, your bank will require you to have private mortgage insurance, otherwise referred to as PMI. Since you may not be familiar with this, let's talk about it. PMI is a risk mitigation tool for the bank in case you default on your loan. Typically, PMI costs up to 1.5% of your total loan amount which can be a lot. As an example, let's say you bought a $400,000 house with 5% down which is $20,000. Your mortgage would be $380,000 and you will be required to get private mortgage insurance. If the PMI was 1%, you would owe an additional $3,800, which is your responsibility to pay. The payment can be one time upfront or baked into your monthly mortgage cost. Now, there is a way to remove PMI over time and that is when you finally have 20% equity in your home. This could take several years. Once you believe you have 20% equity in your home, you will get another appraisal, give that to your bank and the bank will release the PMI requirement.…

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