If you're thinking about buying a home in Georgia, you need to know about private mortgage insurance. This is a type of insurance that many lenders require if you don't put down at least 20% of the purchase price. Let's explore private mortgage insurance and what you need to know about it. We'll also provide some tips on how to avoid paying this fee if possible.
Why Is It Required?
In a nutshell, private mortgage insurance protects the lender if you default on your loan. If you stop making payments and the house is sold for less than what you owe, the insurer will cover the difference. It's also sometimes called "pmi."
While this might seem like a good thing for the lender, it's actually not. The vast majority of borrowers do eventually make all their payments and never default. So, the lender is really just paying for insurance that they'll probably never need to use. But, because lenders are required to have this insurance, they pass the cost on to borrowers.
How Much Does It Cost?
The cost of private mortgage insurance varies, but it's usually around 0.25% to 0.50% of the loan amount per year. So, on a $200,000 loan, you might pay $500 to $1000 per year in insurance. This can add up over time, so it's important to factor this cost into your budget when you're considering a home purchase.
How Can You Avoid It?
There are a few ways that you might be able to avoid paying private mortgage insurance. One is to put down at least 20% of the purchase price. This is the magic number that most lenders use to determine whether or not you need insurance. If you can swing it, this is usually the best option since it will save you money over the life of the loan.
Another way to avoid pmi is to get a government-backed loan such as an FHA loan. These loans require mortgage insurance, but the premiums are usually lower than they are for private insurance. You might also be able to have the pmi removed once you've built up enough equity in your home.
This typically happens when you reach the 20% mark, but it can vary depending on the lender.
As you can see, private mortgage insurance is something that you'll need to be aware of if you're thinking about buying a home in Georgia. It's an extra cost that can add up over time, but there are ways to avoid it.
We hope this blog post has been helpful in explaining how private mortgage insurance works and what you can do to avoid it.
What does this have to do with homeowners insurance?
While private mortgage insurance protects the lender if you default on your loan, homeowners insurance protects your home against damages.
If you're not sure where to start, our team at Arrow Insurance Agency can help. As an independent insurance agency, we offer a wide range of insurance products and can tailor a policy to fit your needs.
We understand that buying a home is a big investment. We also know that it's important to protect that investment with the right insurance coverage.
Contact us today to get started!