What Is Private Mortgage Insurance and Can I Avoid It in San Diego?

What Is PMI and Why Do Lenders Require It?

Private mortgage insurance is a monthly premium charged when a borrower's down payment is less than 20 percent of the purchase price. PMI protects the lender — not you — against losses if you default. It adds to your monthly housing costs and represents a real financial consideration when evaluating affordability in San Diego.

How Much Does PMI Cost in San Diego?

PMI typically costs 0.5 to 1.5 percent of the loan amount annually, depending on your credit score, down payment, and lender. On a $700,000 San Diego loan with 5 percent down, PMI might add $300 to $600 per month to your payment. This significant cost motivates many buyers to increase their down payment when possible.

When Does PMI Go Away on a Conventional Loan?

On a conventional loan, PMI cancels automatically when your loan balance reaches 78 percent of the original purchase price. You can request cancellation at 80 percent equity. In San Diego's appreciating market, you can also refinance or get a new appraisal to demonstrate that your home's value has increased enough to establish 20 percent equity sooner.

Strategies to Avoid PMI

• Put 20 percent or more down — eliminates PMI entirely on conventional loans
• Piggyback loan: Take a first mortgage at 80 percent plus a second covering the remainder
• LPMI: Lender-paid mortgage insurance — lender pays PMI in exchange for a slightly higher interest rate
• VA loans: No PMI ever — one of the VA loan's strongest advantages for San Diego military buyers

PMI vs. FHA MIP

FHA mortgage insurance (MIP) is often confused with PMI but is different. FHA MIP is required regardless of down payment size and, for loans with less than 10 percent down, cannot be canceled. Buyers who initially need FHA often refinance to a conventional loan once they have built enough equity to eliminate the ongoing MIP costs.

Related Reading on RiederHomes.com:

→ Blog #4: Down Payment Requirements

→ Blog #3: Types of Home Loans

→ Blog #10: VA Loans San Diego

→ Blog #7: Understanding Interest Rates

— Mance Rieder, Broker Associate | Rieder Homes Group | REAL Broker | riederhomes.com | 858-295-0556