What Is PMI on a Mortgage? | Home Loan Advisors
What Is PMI, and Do You Have to Pay It When Buying a Home in Florida?
By: Josh Jampedro, Home Loan Advisors
Video Transcript: Understanding PMI When Buying a Home in Florida
[00:00 - 00:04]
On-screen Text: What is PMI, and do I have to pay it when buying a home in Florida?
Josh Jampedro: PMI is private mortgage insurance.
[00:04 - 00:16]
So mortgage insurance is required when you put less than 20% down. You have to pay it if you don't put 20% down in most cases. There are ways to prepay your MI.
[00:16 - 00:27]
A lot of times these are marketed as "no MI." You still have MI; you just paid it up front. So the cost is there pretty much no matter what if you put less than 20% down.
[00:27 - 00:41]
But it's often way overblown. So a lot of the times mortgage insurance is $25 a month, $50 a month, $80 a month, depending on your loan amount. And people will do all of these different things to try to avoid PMI, when in reality, it's just easier to pay the PMI.
[00:41 - 00:56]
So I've had people try to take out, like, 401(k) loans and pay penalties and do all of this stuff. And then I tell them, like, you're going to save like $65 a month, and it's going to cost you, like, $4,000 to do this. And they're like, "I thought PMI was $500 a month." It's really not that expensive.
[00:56 - 01:04]
If you have bad credit, your PMI increases. So for people generally who have good credit, PMI is really not that expensive.
[01:04 - 01:18]
If you have an FHA loan, PMI is flat. It's 0.55% of your loan amount per year. So take your loan amount, multiply it by 0.0055, divide that by 12, and that's how much your mortgage insurance is. So usually with an FHA loan, it's between, like, $100 and $200 a month.
[01:18 - 01:29]
So again, it's not horrible. It's not the most ideal set of circumstances either, but if you're able to buy a house with 3.5% down instead of 20%, that 0.55% per year is kind of a small price to pay.
Executive Summary
Direct answer: PMI stands for private mortgage insurance, and it's required any time you put down less than 20% on a home in most cases. You can prepay it up front through loans marketed as "no MI," but the cost is still there either way — it's just paid differently. For most people with good credit, PMI is not nearly as expensive as they assume.
Do You Have to Pay PMI in Florida If You Put Less Than 20% Down?
Yes — in most cases, mortgage insurance is required whenever your down payment is below 20%. Some loans are marketed as "no MI" options, but that's misleading. You still have mortgage insurance in those cases; you've just prepaid it up front instead of paying it monthly. Either way, if you're putting down less than 20%, the cost of mortgage insurance exists somewhere in the transaction.
For most FHA borrowers, this works out to
somewhere between $100 and $200 a month.
| Step | Calculation |
|---|---|
| Take your loan amount | e.g. $300,000 |
| Multiply by 0.0055 | $1,650 per year |
| Divide by 12 | ~$137.50 per month |
Frequently Asked Questions
How Much Does PMI Actually Cost?
PMI is often way overblown — for most people, it lands somewhere between $25 and $80 a month, depending on the loan amount. That's a much smaller number than what people tend to assume before they actually see it quoted.
People frequently go to expensive lengths to avoid a cost that isn't that big to begin with. One real example: a buyer took out a 401(k) loan and paid an early withdrawal penalty to avoid PMI — spending around $4,000 to save roughly $65 a month. When it was explained that PMI wasn't going to cost anywhere near what they assumed, the reaction was, "I thought PMI was $500 a month."
"It's really not that expensive." — Josh Jampedro
What Factors Increase Your PMI Cost?
Credit score is the main factor that moves your PMI cost. If your credit is on the lower end, your PMI increases. For buyers with generally good credit, PMI stays affordable and isn't a major factor in the overall cost of the loan.
How Is PMI Calculated on an FHA Loan?
On an FHA loan, mortgage insurance is a flat rate of 0.55% of your loan amount per year. See table above.
Is PMI Worth Paying to Buy a Home Sooner?
Yes, in most cases — paying PMI to buy with 3.5% down instead of waiting to save 20% is a reasonable trade-off. It's not the most ideal set of circumstances, but a flat rate of 0.55% a year is a fairly small price to pay for the ability to get into a home years earlier than waiting to hit 20% down.
