If you are making a down payment of less than 20 percent, you will most likely have
to get Private Mortgage Insurance
(or PMI). It ensures that the lender is guaranteed, by the mortgage insurer, 80
percent of the loan if you default. The insurance premium amount varies by the
type of loan. But generally, the initial premium is 1-5% of the mortgage total,
and possibly an additional monthly fee.
Not all lenders will require PMI, but those that follow the
Fannie Mae and Freddie Mac guidelines
will.
Some borrows opt to get a second mortgage to use for part of the down payment to
avoid paying PMI. For example, you can get an 80/10/10 loan (80 percent loan, 10
percent second mortgage, and 10 percent down) or a variation thereof and sidestep
PMI.
Government loan programs, such as
FHA or VA loans, are backed by the government rather than PMI.
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© Zillow, Inc. 2009. Originally posted – Private Mortgage Insurance