What is PMI?
When a homebuyer makes a down payment of less than 20 percent, the lender requires the borrower to buy private mortgage insurance, or PMI. There’s a simple reason for this: if mortgage payments are not received, the lender must sell the property to recoup costs. It's estimated that a lender receives about 20 percent less when selling a foreclosed home than they would in a regular sale. PMI protects the lender from losing money if the borrower ends up in foreclosure.
PMI essentially allows homebuyers to purchase a home with less than 20% down payment, while simultaneously protecting the lender against significant losses. Without the advent of PMI, homeownership would be significantly less affordable than it is today.
Here's an example: The 2018 median sales price of a NJ home is $313,000. A 20% down payment would be $62,600. How many Americans have accessibility to $62,600 down payment? Not many.
The good news is that PMI is more affordable today than ever before. There are also PMI alternatives when you have less money than a 20% down payment. Before you determine that PMI is a "bad thing," or that you need a 20% down payment, you should carefully review all your options. We offer reduced monthly PMI, annual PMI, and NO PMI options for most of our loan products. Let the numbers speak for themselves and make the decision that makes the most sense for you.