PMI is Private Mortgage Insurance and it protects lenders in case homeowners don't make mortgage payments.
When you buy a house with less than 20 percent down, you usually have to pay PMI. The lender will add this cost to the monthly mortgage payments. The cost of PMI can run from $30 to $70 per $100,000 on your loan. The cost of PMI depends on your credit score and the size of your down payment. Generally, the less you put down, the higher the cost of mortgage insurance.
It's worth noting that you don't have to pay PMI with an FHA loan, but you might have to pay FHA mortgage insurance. That is often less expensive than PMI.
Veterans with a VA loan won't pay PMI, but you will pay a funding fee, a one-time cost that ranges from .5 percent to 3.3 percent, depending on the type of loan, your down payment, and whether you have used a VA loan before.
PMI IS not forever.
When your equity reaches 22 percent of the home's original appraised value, the loan servicer is required to drop PMI.
You can ask your lender to remove PMI when your equity reaches 20 percent, but lenders typically won't consider removing PMI until after a two-year seasoning period.
Sometimes a lender will drop PMI if the appraised value of your home jumps and bumps the value up past 20 percent.
The good news is that once you have substantial equity in your home, you probably won't have to pay PMI again if you sell. That is because you'll have a chunk of money from your home sale. You can use that money as a down payment on your next home, which will bring down your mortgage payment and eliminate the additional cost of PMI.