Fishers Realtor explains Private Mortgage Insurance

You typically will see PMI applied when you have less than 20% equity (mortgaged amount is more than 80%). The misnomer I often see is that people interpret that to mean they need 20% down in cash. There are other ways to ensure the 1st mortgage is at 80%; by taking a 2nd mortgage for say 10% and then the balance of 10% is in cash. The 2nd mortgage will run a bit higher on an interest rate, but some people prefer to pay that off quickly and avoid the PMI charges completely.

Or course, a 2nd is much harder to come by these days. A credit score over 700 is expected.

When you purchase a home with an FHA loan; PMI is automatically attached regardless of the amount put down. It is typically .55%. This is true if you have a 30 year FHA loan; PMI would not be required on a 15 year FHA with 10% or more down. (thanks David!)

PMI costs vary greatly, they can be as low as 1/2 % of the mortgaged value to 1.00%. Here is an example of how this might work:

A buyer searching in the Fishers Real Estate market might find a home in Sunblest for $139,900. Their Fishers Realtor® negotiates the price to $133,000. The buyer puts down $13,000 leaving a mortgage of $120,000. Lots of numbers, I know...stay with me. The PMI is 1% of the mortgage balance or $1,200 or an extra $100 a month.

Here's a bit of good news, PMI is now deductible up to $1,000 a year.

It is important to understand the "Total" monthly mortgage payment. Often calculators on various websites give you an amount that is JUST principle and interest. You must also include property taxes, homeowner insurance and PMI (depending on your loan) and possibly a monthly maintenance fee if you are buying a condo or choose a home in a low maintenance community.

If you have other questions about PMI or other real estate lingo, please let me know. I am here to help you understand the buying and selling process. More real estate terms defined here.

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Other Northside Blogs (Carmel, Noblesville, and Geist)

Cindy "in Indy" Marchant - Fishers Real Estate Agent
Keller Williams Realty Indy Metro NE
Fishers IN Real Estate Website
317-290-7775