Private Mortgage Insurance (PMI) is a charge that is included in your monthly mortgage payment when you take out a conventional loan and make a down payment that is less than 20% of the home’s purchase price. Having PMI can help you qualify for a loan that you may not have otherwise.
Given that the borrower cannot afford to put 20% down, the credit union will want to protect itself from the potential risk that they default on the loan. PMI is arranged and added by the lender. It can be paid out to private insurance companies like MGIC or Enact. The monthly premium amount will be shown on your Loan Estimate, Closing Disclosure, First Mortgage Payment Letter, and all of your mortgage statements.
PMI may automatically drop off your loan when the Loan-to-Value (LTV) reaches 78%. In other words, when the remaining balance of your loan reaches 78% of the home’s appraised value or purchase price, whichever is lower. It will not drop off automatically if you have any 30-day-late payments on your history.
You can request that PMI be removed from your loan at 80% LTV if you get a new appraisal. Typically, the new appraisal will show that your home has increased in value since you first took out your loan, and therefore you will have reached 78% LTV. This is on a case by case basis and is approved at the credit union’s discretion.
