Private Mortgage Insurance: The Basics

Purchasing a new home - especially for young families - can be difficult even with private mortgage insurance (PMI), but having such insurance strategies in place allows people to purchase homes even when they can't affird a sizeable down payment. Private mortgage insurance is required for approximately 10% of those who seek mortgages every year, and is usually required by the mortgage company if you can't afford at least a 20% down payment on your home.

Who Needs Private Mortgage Insurance?
Private mortgage insurance isn't required for everyone, but according to bankrate.com, approximately 1.5 million Americans had it in 2005. Your mortgage comapny assures its investment in you by requireing private mortgage insurance, which usually runs between $60 and $150 per month in addition to your mortgage payments. You can read your mortgage agreement to find out how long you have to carry it.

How Large of a Down Payment Do I Need to Avoid Private Mortgage Insurance?
Most mortgage companies only require private mortgage insurance if you put less than 20% down on your home. Statistics have shown that people who put less than 20% down are more likely to default on their mortgage, so rest assured that this number wasn't pulled out of thin air. Although 20% is the norm, however, you might get away without private mortgage insurance if you put a little bit less. It depends on the mortgage company.

How Can I Shop Around for the Best Private Mortgage Insurance Rate?
You can't. Your mortgage company works with one of the eight insurance companies nationwide that provide private mortgage insurance, and they will sign you up with that provider's service. The good news is that most private mortgage insurance is about the same price per month; the bad news is that you don't get a say in the matter.