What is Private Mortgage Insurance?

Once a home has been purchased and you go to closing you may be required to purchase private mortgage insurance (PMI) . This insurance is payable to a lender and is specifically to offset losses in the case where a mortgagor is not able to repay the loan and the lender is not able to recover its costs after foreclosure and sale of the mortgaged property.

PMI insurance protects the lender, not the homeowner and it is typically required by lenders due to the higher level of default risk that's associated with low down payment loans. This type of insurance is usually only required if the downpayment is less than 20% of the sales price or appraised value (in other words, if the loan-to-value ratio (LTV) is 80% or more)

The cost of PMI premiums vary, but typically they fall between one-half and one percent of the loan amount, depending on the size of the down payment and loan specifics. These costs are in addition to your mortgage payment and not usually tax deductible. The PMI may be payable up front, or it may be capitalized onto the loan.


Many homebuyers want to know how long they will be required to have this insurance. If you are currently paying PMI, you will need to continue paying your premiums until you pay down your mortgage to the point that it equals 80 percent of the original purchase price or appraised value of your home at the time the loan was obtained, whichever is less.

You have another option where the lender will automatically cancel the payments but they wont do this until you 22% equity in the home rather than 20%. Keep in mind you do have the right to cancel PMI at the 20% mark a lender won't automatically cancel it for another 2 percent

Home Purchase Agreements

During the homebuying process, you will be required to submit what is known as a real estate purchase agreement to the seller. This agreement will be between you and the builder if the home you are buying is a new construction. The purpose of this agreement is a legal document between the buyer and the seller and will outline certain to aspects of the sale, including the purchase price.

The real estate purchase agreement also indicates specifics of the sale such as the time frame for the sale and any conditions or contingencies relating to the sale, and other things you should be aware of.

As with any other legal contract, a real estate contract may be formed by one party making an offer and another party accepting the offer. Typically, the party making the offer prepares a written real estate contract, signs it, and transmits it to the other party who would accept the offer by signing the contract. At this point, the other party may accept the offer, reject it or make a counteroffer. To be enforceable, a real estate contract must possess original signatures by the parties and any alterations to the contract must be initialed by all the parties involved.

Because these agreements can be confusing, it is always a good idea to work with a real estate professional when dealing with legal forms before signing if you have any questions or are confused with any of the terms.