What is private mortgage insurance (PMI)?

Private mortgage insurance (PMI) is a type of insurance that protects a lender in case a borrower defaults on their mortgage loan. It is usually required when a borrower has a down payment size of less than 20% of the home’s purchase price. When PMI is in effect, the lender will typically pay the insurance company a monthly fee, which is then passed on to the borrower as an additional cost. In California, lenders are required to provide borrowers with written notice when they are required to pay for PMI. This is known as the PMI Disclosure Statement. This document outlines the details of the PMI, including the amount of the premium, the premiums being charged annually and any additional fees or costs associated with the PMI. California law also requires lenders to take certain steps if a borrower has requested to cancel their PMI. Generally, lenders must cancel PMI once a borrower has paid their loan to an amount that is equal to or less than 78% of the original value of the property. They must also cancel PMI if the property has increased in value, or if the borrower has made additional payments that have been documented. Therefore, PMI can be a helpful tool for borrowers who do not have enough money saved up to make a larger down payment. Although it does add to the cost of a mortgage, it can give borrowers the ability to purchase property that they may not otherwise be able to. Although it is required under California law, lenders should provide clear details of the PMI costs associated with a loan before it is agreed upon.

Related FAQs

What is a bridge loan?
What is a home equity loan?
What are the differences between a lender and a mortgage servicer?
What is an "assumption" mortgage?
Does the interest rate on my mortgage change over time?
What are the pros and cons of taking out a mortgage?
What is a mortgage-backed security (MBS)?
What are the benefits of a mortgage?
Why is an adjustable rate mortgage (ARM) beneficial?
What are the differences between a mortgage broker and a lender?

What is private mortgage insurance (PMI)?

Related FAQs

Related Blog Posts