Private Mortgage Insurance, Explained Simply

If you’re like many people, you’ve heard of private mortgage insurance, or PMI. But what is it, and is it something that you’ll be required to purchase when you buy a home land in North Florida? This guide explains.

Private mortgage insurance is something the vast majority of lenders make a person purchase when they put down less than 20% on a home loan. The purpose of PMI is to protect the lender if you can’t make your mortgage payments.

Essentially, when a person puts less than 20% down on their home purchase, they are seen as more of a risk for defaulting on the loan. To offset this risk and increase the chances that they will be repaid in full, the lender will require the borrower to purchase an insurance policy that covers them in case of a default.

This PMI is generally paid upfront as a lump sum or rolled into your monthly payment and can cost anywhere from 0.3% to 1.5% of the loan amount per year. The exact rate you pay depends on factors such as your credit score, the type of loan you are getting and the size of your down payment.

Will You Have to Pay for PMI?

It depends on how much you plan to put as a down payment on your home purchase. Generally speaking, if you’re making a down payment of less than 20%, then yes, you will be required to purchase PMI as part of your loan agreement.

Will PMI Cover You if You Can’t Make Your Payments?

No, not exactly. The purpose of private mortgage insurance is to protect the lender in case you are unable to make your payments and default on your loan. It does not cover you in any way – it just ensures that the lender is able to recoup their losses if you are unable to pay them back.

Are You Buying a Home or Land for Sale in Lake City?

If you’re moving to Lake City, we can help you find the perfect place to live. Call us at 386-243-0124 to tell us what you want from your home and we will begin searching right away.

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