Do all lenders require PMI?

Generally, lenders require PMI for conventional loans with a down payment of under 20%. Guidelines for mortgage insurance, interest rates, and other loan aspects come from the federal-level mortgage institutions, Fannie Mae or Freddie Mac. However, conventional loans aren’t the only ones requiring mortgage insurance, and not every lender requires it in every scenario. For example, the Jumbo Smart loan from Rocket Mortgage® is for clients looking to borrow more than the local conforming loan limits. These loans require a minimum of a 10.01% down payment, depending on the loan amount, but they don’t have any PMI requirements. Therefore, it doesn’t hurt to ask whether PMI will be necessary when shopping around.

Can I pay off PMI early?

You can get ahead of PMI costs in two ways: a single-premium payment or gaining 20% equity in the home. The first option means paying your entire PMI balance at once, eliminating the need for monthly payments and accumulating interest on the balance due. Second, you can make additional payments on your mortgage to reach 20% equity faster than your original payment schedule. This way, you’ll obtain the minimum equity necessary to remove future PMI charges.

Is PMI automatically removed?

Although PMI isn't mandatory at 20% equity, your lender won't automatically remove it from your mortgage. Instead, the borrower must ask the lender to remove it. However, the lender automatically removes PMI when the borrower hits 22% equity.

What’s the difference between MIP and PMI?

The Federal Housing Administration (FHA) charges mortgage insurance premiums (MIP) for the same purpose for borrowers with FHA loans. Specifically, FHA borrowers pay 1.75% of the loan balance for upfront MIP at closing (your lender may roll this charge into your loan if you can't afford it). Then, you'll have an annual MIP payment of 0.85% if you have a standard FHA loan with a 3.5% down payment on a loan of no more than $625,500. Other FHA loan types charge different percentages for MIP. Typically, borrowers pay this fee by breaking it down into monthly payments along with their mortgage.

What Is PMI Insurance And How Do I Avoid It?