Understanding PMI

Understanding PMI

When you buy a loft or condo for sale in DTLA with less than 20% down, you’re most likely going to have to buy private mortgage insurance.

But what is private mortgage insurance, and when can you stop paying it?

Understanding PMI: What is Private Mortgage Insurance?

Private mortgage insurance is money you pay out of your own pocket that protects your lender in case you default on your loan. In layman’s terms, that means you’re insuring your lender. If you stop making payments on your condo or loft, the lender won’t lose as much money.

A lot of lenders require it when you put down less than 20% on your mortgage because logically, they figure that you’re a higher risk. When 20% of your own money is on the line, you’re more likely to stick it out than you would be if you had less money to lose.

While that’s not necessarily true – most people will stick it out anyway – the lender wants that extra reassurance. Besides, there are other consequences to walking away from a mortgage before it’s paid off (a 10-year ding on your credit report for foreclosure, for one).

When Can You Stop Paying PMI?

Usually you can stop paying PMI once you’ve built 20% equity in your home. That means when you’ve paid 20% of the home’s purchase price, you can call your lender and ask them to stop charging you. (They might stop it automatically, but it never hurts to call and double-check.)

Do All Loans Require PMI if You Have Less Than 20% Down?

Some home loans don’t require PMI. One notable exception to the PMI rule is the VA loan. Not everyone is eligible for a VA loan – they’re limited to current and former military service members and a handful of civilians. However, if you do use a VA loan and put down less than 20%, you won’t be required to pay for private mortgage insurance. That’s because your loan – either some or all of it – is backed by the Veterans Administration. Your lender is at less risk lending you money than they would be lending it to someone without a loan backed by the VA.

Are You Buying a Loft or Condo  for Sale in DTLA?

Call us at 213-254-7626 or get in touch with us online to start exploring your options when you want to buy a loft or condo in downtown Los Angeles.

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