What Is Private Mortgage Insurance When Buying a Home in Las Vegas?
When buying a home in Las Vegas, the size of your down payment can affect more than how much money you need at closing. Depending on the type of loan and amount you put down, your lender may require mortgage insurance.
One type buyers commonly hear about is private mortgage insurance, or PMI.
What Is Private Mortgage Insurance?
Private mortgage insurance is generally associated with conventional mortgage loans when the buyer makes a smaller down payment.
PMI protects the lender, not the home buyer, if the borrower fails to repay the loan.
Whether PMI is required, how much it costs, and how long it remains in place depend on the loan and the borrower’s circumstances.
When Might a Las Vegas Home Buyer Need PMI?
PMI is commonly required on a conventional loan when the down payment is less than 20% of the home’s purchase price.
That doesn’t mean you necessarily need a 20% down payment to buy a home.
Many buyers purchase homes with considerably less money down. PMI can make that possible by reducing some of the lender’s risk.
How Much Does PMI Cost?
There isn’t one PMI rate that applies to every buyer.
The cost can depend on factors such as:
- Loan amount
- Down payment
- Loan-to-value ratio
- Credit profile
- Loan terms
- Mortgage insurance provider
Your lender can provide an estimate based on the financing options available to you.
How Is PMI Paid?
Depending on the loan, mortgage insurance may be paid in different ways.
A common arrangement is a monthly charge included with your mortgage payment. Other structures may also be available depending on the lender and loan program.
Before choosing a loan, make sure you understand how any mortgage insurance will affect both your upfront expenses and monthly housing payment.
Can PMI Be Removed Later?
With many conventional loans, PMI doesn’t necessarily remain for the entire life of the mortgage.
Federal law provides circumstances under which borrowers can request cancellation or receive automatic termination of PMI once certain requirements are met.
The rules can depend on factors including the loan balance, original property value and payment history.
If your loan has PMI, ask your mortgage servicer what requirements apply to removing it.
Is PMI the Same as Homeowners Insurance?
No. They protect different parties against different risks.
PMI protects the mortgage lender against certain losses if the borrower defaults.
Homeowners insurance protects the homeowner and property against covered losses specified by the insurance policy.
A buyer may have both at the same time.
Do FHA Loans Have PMI?
FHA loans use mortgage insurance premiums (MIP) rather than conventional private mortgage insurance.
The rules, costs and cancellation requirements for FHA mortgage insurance differ from conventional PMI.
That’s one reason it’s useful to compare the complete cost of different financing options rather than looking only at the interest rate or down payment.
Should I Avoid PMI?
Not necessarily.
Putting 20% down may eliminate PMI on a conventional loan, but using that much cash isn’t automatically the best choice for every buyer.
A smaller down payment could allow you to keep more money available for closing costs, moving expenses, repairs, improvements or cash reserves.
The better question is how the entire financing package fits your budget and plans.
Planning Your Las Vegas Home Purchase
Before deciding how much to put down, talk with a qualified mortgage professional about the loan programs available to you and the costs associated with each.
Once you know your approximate price range and financing options, I can help you evaluate homes throughout Las Vegas and Henderson and understand how the purchase process fits together.
