What is private mortgage insurance (PMI), and when does it go away?

PMI is arranged by your lender and provided by private insurance companies. It insures the lender against loss if a borrower fails to make loan payments. That distinction matters: if you fall behind, PMI does not protect you, and you can still lose your home through foreclosure, as the Consumer Financial Protection Bureau states plainly. What PMI does do is help you qualify for a loan you might not otherwise get, because the lender is taking on less risk. For buyers in Fairfax who are ready to buy but have not saved a full 20 percent down payment, PMI is often the bridge between renting and owning.

You usually pay PMI as a monthly premium added to your mortgage payment. Your Loan Estimate and Closing Disclosure show a monthly premium on page 1, in the projected payments section. Some loans instead charge a one-time premium upfront at closing, shown on page 2, and some combine an upfront charge with a smaller monthly premium. There is also a lender-paid version: the lender covers the premium and charges a higher interest rate instead, so there is no separate PMI line, but the higher rate does not end when your equity grows. Ask your lender to price each option over the time you realistically expect to keep the loan. In Reston, buyers comparing lenders side by side often find the cheapest structure depends on that timeline, not on the first month's payment.

On most conventional loans, federal law gives you two exit points, and both are measured against the home's original value, meaning the lesser of your purchase price or the appraised value when you closed. First, you can request cancellation in writing when your balance is scheduled to reach 80 percent of that original value, or sooner if extra principal payments bring your actual balance to 80 percent. To approve the request, your servicer will generally require that you are current, have a good payment history, and, if asked, show the value has not declined and certify there are no junior liens. Second, PMI must end automatically when your balance is scheduled to reach 78 percent, if you are current. If it has not ended by then, it must end shortly after the midpoint of your loan term. Buyers in Ashburn who pay a little extra principal each month often use the 80 percent request rather than waiting for the automatic date.

PMI applies to conventional loans, not to every loan type. FHA loans charge their own mortgage insurance premium, called MIP, with different rules for how long it lasts. VA loans do not require PMI at all, though eligible borrowers pay a separate funding fee. Before you decide PMI is a deal breaker, compare the full picture with your lender: the rate, the premium structure, and how soon you can realistically reach 80 percent. For many Northern Virginia buyers, paying PMI for a limited stretch costs less than waiting years to save 20 percent while prices and rent keep moving.

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