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I've seen the term PMI used a couple of times on this site and don't know what it is. What is it?

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Private Mortgage Insurance. It's money that you pay to an insurance company to make the lender whole in the event that you go into default. It's a real waste of money for you.

If you are trying to finance more than 80% of the value of a home, a standard mortage is likely to require that you get PMI. Nowadays there are other options which involve paying substantially more interest.

  • Unless, of course, you qualify for a VA loan. Then you can borrow up to the full value of the house without paying PMI. – Kevin Apr 12 '11 at 20:08
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Yes, PMI is what the lender requires to loan you more than 80% of the home's value. I could easily present scenarios where it's exactly the right decision to use PMI and get the purchase done. A 100K mortgage at 90% LTV will cost you $521/year in PMI. If you are renting and struggling to get a higher downpayment, it can take quite a long time to save the additional $11K to put down. Only the buyer can know if the house is such a bargain, or if rates have bottomed, but the decision isn't so clear cut.

  • I fully agree with this. Sometimes it's definitely worth it. In your example, if you had 10K sitting in the bank, you could fire it at the principle and get the PMI removed to save $521/year. But if you have at least $10K in CC debt with an APR of more than 5.21%, you'd be much better off paying off the higher interest debt than getting rid of the PMI. Everyone's situation is different. – TTT Feb 2 '17 at 17:35

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