Do all home buyers purchase PMI (private mortgage insurance)?

What is PMI? Do all buyers need it? 
PMI - Hundred dollar bills, shape of house and words PMI and your mortgage

PMI, or Private Mortgage Insurance, is used when buyers have less than 20% down and are obtaining just one mortgage.

Who needs PMI? Who doesn’t?

Not everyone needs Private Mortgage Insurance.

If you have 20% to put down (your down payment), and it’s a regular or conventional loan, you do not need to pay for this insurance product.

Put another way, if you are obtaining one mortgage and it has a higher than 80% loan to value ratio, such as an 85% or 90% mortgage, you will buy the mortgage insurance.

A 10% or 15% down mortgage with just one loan will require PMI.

A way to avoid paying for this fee is to get an 80% first loan and a smaller second loan. The first loan won’t require the insurance. The second loan will have a higher interest rate, though. The advantage to this approach is that when you pay off the second mortgage, you are done with the higher cost.

On the other hand, if you have Private Mortgage Insurance and you want to be freed from it when your home value rises,  you’ll need to pay for an appraisal and hope that it comes out favorably. It can be a hassle to break loose of it.

If you’re purchasing with FHA backed financing, there’s mortgage insurance built into the product. (It’s government backed, so it’s just MI rather than PMI.)

Who is protected with PMI?

This type of insurance does not protect the consumer. Instead, it protects lenders in case of a default by the borrower.

 

Related reading:

What is mortgage insurance and how does it work? (From the Consumer Financial Protection Bureau)

Seller concession (this site)