If you’re in the process of buying a home in Florida, you may have come across the term “private mortgage insurance,” or PMI, during conversations with your lender or real estate agent. PMI can be confusing at first, especially if you’re unfamiliar with the specifics of home financing. Read this blog and reach out to our seasoned Florida real estate & title insurance attorneys to learn about what PMI is, why it exists, and whether you might need it as part of your home-buying journey. Here are some of the questions you may have:
What Exactly is Private Mortgage Insurance (PMI)?
Private mortgage insurance is a type of insurance that protects the lender—not you, the borrower—if you fail to repay your mortgage loan. This coverage reduces the lender’s risk, especially when they approve loans with smaller down payments. Typically, PMI is required for conventional loans when a borrower puts down less than 20% of the home’s purchase price.
PMI is not a single, one-size-fits-all expense; its cost varies depending on the size of your loan, the amount of your down payment, and your credit score. On average, borrowers can expect to pay between 0.3% and 1.5% of the loan amount annually for PMI. While that might not seem like a large percentage, it can add up quickly when factored into your monthly mortgage payment. For instance, on a $300,000 loan, PMI could range from $75 to $375 per month.
Why Does PMI Exist, and How Does It Work?
PMI was designed to help more people afford homes while still offering lenders a level of financial protection. Without PMI, lenders might be reluctant to approve loans for borrowers who lack substantial savings for a large down payment. For this reason, PMI has made homeownership more accessible for many Americans, particularly first-time homebuyers or those living in areas with high housing costs, like certain parts of Florida.
Here’s how PMI typically works: once your loan is approved, the lender arranges for PMI coverage, and you’ll pay the premiums as part of your monthly mortgage payment. These premiums continue until you have enough equity in your home—usually 20% of the home’s value—at which point PMI is no longer required. In some cases, you can request its removal earlier.
Do I Really Need PMI, and Are There Ways to Avoid It?
Whether you need PMI depends on your financial situation and the type of loan you’re pursuing. If you’re able to make a down payment of 20% or more, you can avoid PMI altogether on conventional loans. However, if a large down payment isn’t feasible for you, PMI might be a necessary step toward achieving homeownership. While it adds to your monthly costs, it can allow you to purchase a home sooner rather than later.
There are also alternatives to PMI that may be worth exploring. For instance, some lenders offer “piggyback loans,” where you take out a second loan to cover part of the down payment. Another option is lender-paid mortgage insurance (LPMI), where the lender covers the cost of PMI in exchange for a slightly higher interest rate.
Both options have pros and cons, and a Florida real estate attorney can help you review your loan terms to ensure they’re in your best interest.
