You’re getting serious about buying a home, and you’re weighing all of the costs into your monthly budget. Depending on the selling price of your home and the amount of your down payment, you may need mortgage insurance in California. Find out more to see if you should include this in your monthly budget.
What is Private Mortgage Insurance?
Private Mortgage Insurance, also known as PMI, is a type of mortgage insurance that is used with conventional loans. Insurance offers protection. In this case, PMI protects you and the lender if you are unable to make payments on your home loan. It’s a small monthly cost that provides a safety net for unexpected financial trouble. If needed, it will be included with your monthly mortgage payment but won’t contribute to the equity that you are building in your home.
Who Needs It?
PMI is only needed if your down payment is less than 20%. If you’re eager to buy a house, but you can’t afford a large down payment, PMI will allow you to still receive a loan. And good news – once you’ve built your home equity up to 20%, the insurance will fall off your monthly payment. If you’re considering how much mortgage you can afford in California, be sure to keep this in mind.
How much does it cost?
Insurance rates vary based off of your personal situation, but it’s mainly determined by your credit score and size of your down payment. As a rule of thumb, the cost of private mortgage insurance can range between $30-70 per month for every $100,000 borrowed. Let’s break that down. If you bought a home with a value of $300,000, you could expect to pay around $150 for PMI. This gives you another reason to focus on building equity in your home – it will be a nice perk when you no longer have to pay this amount.
Why Is It Required?
If you’re making less than a 20% down payment, it allows the lender to still give you a loan while minimizing risk. You never know what could happen. If unexpected circumstances leave you short on cash, the insurance policy will allow the lender to still be paid. The biggest benefit for you, is that you can receive a loan with less money upfront. If you’re working with the right lending agency, you don’t have anything to worry about.
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