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The Good Brigade/Getty Images August 11, 2022 Libby Wells covers banking and deposit products. She has more than 30 years’ experience as a writer and editor for newspapers, magazines and online publications. Bankrate senior editor for mortgages Bill McGuire has been writing and editing for more than four decades at major newspapers, magazines and websites. Bankrate logo The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. Bankrate logo The Bankrate promise
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our mortgage reporters and editors focus on the points consumers care about most — the latest rates, the best lenders, navigating the homebuying process, refinancing your mortgage and more — so you can feel confident when you make decisions as a homebuyer and a homeowner. Bankrate logo Editorial integrity
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Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo How we make money
You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. As a consumer, your credit score affects everything from your ability to finance a car to getting a credit card. And this extends to homeownership. The importance of your credit score when buying a home is something not all consumers understand. This comes to play especially if you put a low down payment and purchase private mortgage insurance (PMI). Private mortgage insurance, or PMI, safeguards the lender’s investment when you put down less than 20 percent. Once you hit 20 percent equity on your property, the PMI requirement is dropped and there are . Until then, you’re obligated to pay PMI on top of your mortgage. How credit scores impact the cost of PMI
Insurers, like mortgage lenders, look at your credit score when determining your PMI eligibility and cost. “I would say it’s one of the bigger drivers of how mortgage insurers tend to price,” says Steve Keleher, executive vice president of portfolio management and pricing at Radian, which offers PMI and a suite of other mortgage and real estate services. “We protect the lender and investor; anything that increases the likelihood of delinquency and foreclosure increases the cost.” Insurers also put a lot of weight on the size of your down payment and . “In general, private mortgage insurance is available for borrowers with credit scores as low as 620 with down payments as low as 3 percent,” says Anthony Guarino, senior vice president of pricing and credit policy for Enact Mortgage Insurance. How much does PMI cost
can cost roughly 0.25 percent to 1.5 percent of the amount borrowed. Insurers use your credit score, and other factors, to set that percentage. A borrower on the lowest end of the qualifying credit score range pays the most. “Typically, the mortgage insurance premium rate increases as a credit score decreases,” Guarino says. He offers this example: A house sells for $333,333 and the borrower pays 10 percent down, leaving an outstanding loan balance of $300,000 with a 30-year, fixed-rate mortgage. A borrower with a “very good” FICO credit score (at least 740) might pay 0.20 percent to 0.30 percent of the loan balance for PMI, or $50 to $75 a month, says Guarino. A borrower with a “good” FICO credit score (670-739) will pay more than the “very good” borrower, says Guarino, estimating 0.35 to 0.40 percent of the $300,000 mortgage, or $80 to $100 a month. But a homebuyer with only “fair” credit, in the neighborhood of 620-660, might pay 0.75 to 1.50 percent of the loan balance, or $188 to $375 per month, Guarino says. “A small change in credit score, 1 to 10 points, may have limited impact,” Guarino notes, “but a lower credit score ranging from 620 to 660 could result in a cost two to three times that of someone with an outstanding credit range of 760 to 800.” works differently, but your credit score still counts when it comes to how much you pay. There are a number of , especially if you plan to buy a house. “Credit score is one of those things that can drive tangible savings,” Keleher says. “That is something within the borrower’s control and will have a benefit when it comes to a mortgage loan.” A good credit score can save you tens of thousands of dollars in interest on a mortgage. to estimate your monthly payment. Why is PMI required for homeowners
Private mortgage insurance is a common cost, especially for first-time homebuyers, who accounted for one-third of home purchases in 2019, according to a . First-time buyers typically paid down 7 percent, financing 93 percent of their home purchase, a more recent 2021 version of the says, while repeat homebuyers typically paid 17 percent down, financing 83 percent of the purchase price. Repeat buyers often have the proceeds of a home sale to use toward a down payment, enabling them to borrow less. The annual cost of PMI is typically expressed as a percentage of the loan amount and is paid in equal monthly payments. So, the more you borrow, the higher your PMI payment. Private mortgage insurance is an added cost of homeownership that buyers dread, but the fact is, many people would not be able to buy a home without it. PMI opens doors for borrowers who can’t get over one of the biggest hurdles to homeownership: the 20 percent down payment. PMI has helped more than 37 million families nationwide to become homeowners over the past 60 years, according to the , a trade association. “One of our goals is sustainable homeownership,” says Keleher, of Radian. “We can help borrowers purchase homes sooner than they would otherwise be able to. We are insuring the American Dream in a sustainable way.” How homeowners can improve their credit score
Homeowners can by checking their credit reports from the three major credit bureaus for any errors and staying on top of their monthly payments. Other ways include asking a friend or family member to add them as an authorized user on their credit card, keeping their low, and taking advantage of programs that can help them boost their score. SHARE: Libby Wells covers banking and deposit products. She has more than 30 years’ experience as a writer and editor for newspapers, magazines and online publications. Bankrate senior editor for mortgages Bill McGuire has been writing and editing for more than four decades at major newspapers, magazines and websites. Related Articles