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Washington DC Real Estate Resource Center: What is Private Mortgage Insurance?

Homebuyers, especially first time homebuyers, are sure to hear the words private mortgage insurance, or PMI, when looking into the costs associated with buying a home. When homebuyers submit a down payment of less than 20 percent, they are required to pay PMI, which is extra insurance that lenders require from homebuyers who obtain loans that are more than 80 percent of their new home's value. In other words, PMI protects the lender if the homebuyer defaults on a home loan.

The Do's and Don'ts When Pricing Your Home

Many homebuyers besides first-time buyers can have trouble accumulating a traditional 20 percent down payment if they haven't been in their current home long enough to see a significant increase in equity. Therefore, many homebuyers pay PMI. PMI is either paid for within closing costs, or as a fee with each monthly loan payment. PMI charges can vary depending on the amount of the loan and down payment, but typically amount to about one-half to 1 percent of the loan, according to the Mortgage Bankers Association of America.

PMI goes beyond being an additional cost when buying a home - it enables borrowers with less cash to have greater opportunity for homeownership. And PMI doesn't last the entire life of the loan. Once a homeowner reaches the point where the loan-to-value ratio hits 80 percent, the homeowner must notify the lender to discontinue the PMI premiums.

When buying or selling a Washington, DC home, count on Michelle Buckman, an expert licensed realtor in Washington, DC and Maryland. Michelle represents W.C. & A.N. Miller and Christie's Great Estates properties in Chevy Chase, Northwest Washington, DC, Capitol Hill and the up and coming Trinidad DC neighborhood. Specializing in the sale and resale of single family home and estates, condos, co-ops, and multi-unit buildings, Michelle works with a full range of clients, including upscale buyers and sellers, investors, and first-time buyers.