The Ultimate Guide to Private Mortgage Insurance

Since real estate investors utilizing conventional financing are often putting 20% or more down when purchasing rental properties, the discussion of Private Mortgage Insurance isn’t typically associated with real estate investing.

However, with the increased popularity of real estate investing strategies like house hacking and Nomad™, there is an increase in real estate investors that are opting to live in their properties that will ultimately becoming investments.

Plus, there are down payment options for investors that require less than 20% down as well. These will also have Private Mortgage Insurance (PMI).

Watch the entire 1 hour and 43 minute class that James taught on Private Mortgage Insurance for real estate investors here:

What is private mortgage insurance?

The best definition is right from the Consumer Financial Protection Bureau website:

I will emphasize a few key points of this definition.

First, PMI is insurance.

Second, it protects the lender (not you)

If you get a loan with less than 20% down, the lender may require that you purchase an insurance policy (usually from a third party… the Private Mortgage Insurance company) that will pay out to the lender if you default on the loan and the lender doesn’t get their money back (up to certain limits).

This insurance (and your other qualifications like credit score and income) helps gives the lender the confidence to loan you money you need to buy the house without putting 20% (or more) down.

Why should you consider getting private mortgage insurance?

Well, in most cases you are not going to voluntarily ask for private mortgage insurance. It will be required if you put less than 20% down payment down when you buy a property.

So, you could choose to put 20% down to avoid PMI.

In some cases, that may mean waiting until you save more money for 20% down.

But, it may make more sense for you to buy now and opt to accept a loan that would require PMI. Let me show you some math.

In cases where you have a limited amount to invest (like our examples on How to Invest $100K), buying properties with less than 20% down payment–where private mortgage insurance would likely be required–can be attractive.

Sample Private Mortgage Insurance Cancellation Letter

Use the following sample letter to edit and send to your loan servicer to request to have PMI removed from your loan.