Here are a few things to know about getting a Loan. A Conventional Loan requires 20% of the purchase price as down payment. Anything less will require Private Mortgage Insurance (PMI).
  • Borrowers whose down payments were less than 20 percent of the value of the home likely were required by their lender to buy private mortgage insurance (PMI), a policy that protects any losses the lender might take if the borrower does not make loan payments.
  • And unfortunately, PMI isn’t cheap. According to a mortgage consumer guide published by the U.S. Federal Reserve System, PMI could cost anywhere from $50 to $100 per month.
  • Fortunately, borrowers can get rid of PMI. The first way, of course, is to put down 20 percent when the house is purchased. If that is not feasible, there is still a possibility of removing the insurance.
  • According to the Federal Reserve, when borrowers make enough payments to gain 20 percent equity in the home (based on the original purchase price), the owner can send a written request to the lender to cancel the PMI.
  • The Federal Reserve adds that federal law required PMI payments to automatically stop once the home has reached 22 percent equity – again based on the original purchase price and with a clean payment record.
  • It’s also important to know that PMI is different than LMPI, which stands for lender’s private mortgage insurance. Some lenders buy LPMI and charge borrowers a higher interest rate to cover the expense. According to the Federal Reserve, this type of insurance does not automatically cancel; instead, the borrower must refinance the home to possibly remove it.