Private mortgage insurance (PMI) is usually required on a conventional loan when you put down less than 20%. For Washington home buyers, the main questions are usually straightforward: how much PMI costs, what affects the price, whether there are ways to avoid it, and when it can be removed. This guide explains those basics so you can better evaluate your loan options without assuming the rules are unique to Washington.
A lot of home buyers in Washington State have questions about private mortgage insurance (PMI). So we’ve created a short guide that explains what mortgage insurance is, why some borrowers have to pay it, and what you can do to avoid it when buying a house.
Let’s start with a basic definition. Private mortgage insurance, or PMI, is a specialized kind of insurance policy that protects a mortgage lender from losses that might result from borrower default (or failure to repay).
Lenders typically require PMI whenever a borrower puts down less than 20% on a home loan. In other words, this insurance is usually required when the loan-to-value (LTV) ratio exceeds 80%.
PMI costs in Washington State can vary quite a bit from one borrower to another. While it’s often expressed as a percentage of the loan amount, the actual cost you pay is quote-specific and should be reviewed in your loan estimate rather than assumed from a broad average alone.
The cost of private mortgage insurance in Washington State varies based on the down payment amount, the loan-to-value ratio, and other factors. In general, borrowers with smaller down payments and higher LTV ratios will usually pay more than borrowers bringing in more cash up front. The structure of the mortgage insurance also matters, since PMI may be built into the monthly payment rather than evaluated as a one-size-fits-all charge.
Annual PMI premiums typically range from 0.3% to about 1.5% of the original loan amount. According to research conducted by Freddie Mac, borrowers can expect to pay “somewhere between $30 and $70 per month for every $100,000 borrowed.”
The most practical way to compare PMI is to look at the full loan estimate and see how it affects your monthly payment and total borrowing cost. That gives you a clearer picture than relying on averages alone.
Related: Reduced PMI premiums for borrowers
Borrowers in Washington State can avoid private mortgage insurance by making a down payment of 20% or more, or by combining loans so that neither has an LTV above 80%. This is why Washington home buyers who can afford a larger down payment often make an investment of 20% or more. They do it to avoid the extra cost of PMI.
It’s also possible to cancel private mortgage insurance in Washington State, once you’ve built up enough equity. When you reduce your loan balance to 80% (or less) of the home’s value, you should be able to cancel your PMI policy. That’s if you’re using a conventional home loan.
In contrast, most borrowers with FHA-insured home loans have to pay their FHA insurance premiums for the life of the loan, under current HUD guidelines.
A conventional home loan is one that is generated and insured within the private sector, with no government backing or insurance. A Federal Housing Administration (FHA) loan, on the other hand, is insured by the government. That’s the primary difference between conventional and FHA.
In Washington State, the term “private mortgage insurance” usually refers to conventional loans. The FHA program has insurance premiums as well, but that’s the subject of another article.
Sammamish Mortgage can help. We serve clients across Washington, Idaho, Colorado, Oregon, and California. Since 1992, we’ve been providing several mortgage programs and products with flexible qualification criteria to borrowers across the Pacific Northwest. Visit our website to get an instant rate quote or to use our online mortgage calculator. Or, reach out to us if you are ready to get pre-approved for a mortgage.
PMI costs in Washington State vary by borrower and loan scenario. Annual premiums typically range from 0.3% to about 1.5% of the original loan amount, and Freddie Mac has reported that borrowers might pay roughly $30 to $70 per month for every $100,000 borrowed.
PMI pricing usually depends on the down payment amount, the loan-to-value ratio, and other loan-specific factors. In general, smaller down payments and higher LTV ratios tend to lead to higher PMI costs.
PMI is usually required on a conventional loan when the borrower puts down less than 20%. Another way to say this is that it generally applies when the loan-to-value ratio is above 80%.
No. On conventional loans, mortgage insurance is usually required only when the borrower puts down less than 20%. FHA loans also have mortgage insurance premiums, but those are separate from conventional PMI.
Private mortgage insurance protects the mortgage lender against losses that could result if the borrower defaults on the loan. It does not provide the same type of protection to the borrower.
A broad estimate can be helpful, but the most accurate number is the one shown on the loan estimate. PMI is quote-specific, so reviewing the full loan estimate is the best way to see how it affects the monthly payment and total borrowing cost.
Borrowers can avoid PMI by making a down payment of 20% or more. Another option mentioned is combining loans so that neither loan has an LTV above 80%.
Yes. One possible way to avoid PMI is to combine loans so that neither loan exceeds an 80% loan-to-value ratio. This approach can allow a borrower to avoid conventional PMI without making a full 20% down payment.
It can. With a conventional home loan, PMI should be cancelable once the loan balance reaches 80% or less of the home’s value and enough equity has been built up.
No. In Washington State, PMI usually refers to mortgage insurance on conventional loans. FHA loans have their own mortgage insurance premiums, and most FHA borrowers have to pay those premiums for the life of the loan under current HUD guidelines.
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