Private Mortgage Insurance (PMI) is an insurance policy that protects lenders against losses incurred due to default on a mortgage loan. When a borrower puts down less than 20% of the purchase price of a home, most lenders require that the borrower purchase PMI as a condition of the loan. The cost of PMI is typically added to the monthly mortgage payment.
Do You Need PMI?
If you are unable to put down at least 20% of the purchase price of a home, then you will most likely be required to purchase PMI. This is because the lender is taking on more risk by lending to someone who has not invested as much money in the home. PMI protects the lender in case the borrower defaults on the loan. However, if you can afford to put down 20% or more, then you may be able to avoid PMI altogether.
How Much Does PMI Cost?
The cost of PMI varies depending on a number of factors, including the size of the down payment, the loan amount, and the borrower’s credit score. Typically, PMI costs between 0.3% and 1.5% of the original loan amount per year. This means that on a $200,000 loan, you could pay anywhere from $600 to $3,000 per year for PMI.
Popular PMI Providers
There are a number of private mortgage insurance providers in the United States. Here are a few of the most popular:
MGIC
MGIC is one of the largest private mortgage insurance providers in the United States, with over $200 billion in insurance in force.
Radian
Radian is another major player in the private mortgage insurance industry, with over $184 billion in insurance in force.
Genworth
Genworth is a global financial services company that provides a range of insurance and investment products, including private mortgage insurance.
Essent
Essent is a newer player in the private mortgage insurance industry, but has quickly become one of the top providers in the market.
National MI
National MI is a private mortgage insurance provider that was founded in 2012 and has quickly grown to become one of the largest providers in the industry.
In conclusion, Private Mortgage Insurance is a necessary expense for borrowers who cannot put down 20% or more on a home purchase. PMI protects lenders from the risk of default, but it also adds to the cost of the loan. There are several private mortgage insurance providers in the market, and it’s important to shop around and compare rates to get the best deal possible.
