Buying a home is an exciting thing. Becoming a home owner is part of the quintessential American dream, so reaching that milestone is amazing. However, if you are buying a home in Mississippi, then you know the process is not that easy. There is a lot involved in buying, but the complications do not necessarily end when you make the purchase.
Money explains that many new home buyers will pay for private mortgage insurance, which can be costly. PMI is insurance for the lender. You will usually have this charge if your down payment is less than 20% of the home’s value.
This insurance is really to help ensure the lender does not lose out. When you put less down on a house, it means you have less equity, and maybe not any, in the home. If you default, the lender assumes a large risk. So, PMI helps the lender feel more secure about lending money to you.
It is not forever
You will not pay PMI for the whole length of the loan, which is a good thing since it can be as much as 2% of your home’s value. One of the best ways to drop PMI is paying extra payments to get you to the place where you have 22% equity in your home. This is the point where your lender feels secure and will allow you to end the insurance. However, do note that many lenders make you keep PMI for a minimum number of years, so even if you do reach 22% equity, you may still have to carry the insurance.
The best thing to do when faced with PMI payments is to avoid them, but if that is not something you can do, then the next best thing is to monitor your equity. Keep an eye on it so as soon as you can, you can get the lender to drop the PMI.