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What is Mortgage Insurance (PMI)?

Mortgage insurance, also known as private mortgage insurance (PMI), is written by an independent mortgage insurance company that protects the lender from losses if a mortgage with a low down payment defaults. A low down payment is usually defined as less than 20% of the purchase price or appraised value, whichever is less.

How Does Mortgage Insurance Work?

A traditional down payment of 20% of the purchase price demonstrates a lower risk to the lender of a borrower defaulting. It indicates, along with other factors considered in the mortgage application process, that the borrower has steady income to afford the down payment. The down payment also covers foreclosure costs for the lender if the borrower does default.

While you can apply for a mortgage with a down payment of less than 20%, this puts the lender at greater risk. The lender may require you to purchase mortgage insurance to lower their risk and offset any costs they may face if you default on your mortgage.

How Much Does Mortgage Insurance Cost?

The cost of mortgage insurance depends on your insurance provider and the amount of your loan. Typically, mortgage insurance will cost .5%-1% of your loan amount annually. You may be able to stop paying mortgage insurance when you have 20% of your home’s value paid off in mortgage payments.

Do I Need Mortgage Insurance?

You may need mortgage insurance if you are planning to put less than 20% down on a house. Talk to your Mortgage Development Officer to determine if you need mortgage insurance.

Related Products

You might also want to consider some alternative products:

80-10-10 Combo Loan - The Santander Bank 80-10-10 Combination Loan is a piggyback loan option that allows customers to make home ownership a reality with as little as 10.01% down. The 80-10-10 Combination Loan consists of a first mortgage from Santander Bank for 80% of your home's value, a variable rate home equity line of credit (HELOC) as a piggyback loan for 9.99% of the home's value, and the 10.01% cash down payment. This option offers you the potential to pay less every month by eliminating the need for Private Mortgage Insurance (PMI).

HOME Ready®FNMA program - The HOME Ready®FNMA program allows for 97% LTV with no borrower funds required on single-unit residences and borrower down payments as low as 3% for two-to four-unit residences. Remaining down payment may use gift funds from a relative, unsecured loans or grants from a governmental agency, or a secured loan that complies with Fannie Mae guidelines. Income must be no greater than 80% of area median income (AMI) based on the location of the subject property. Homebuyer education is also required on all loans.

All loans are subject to approval.

 Equal Housing Lender. Santander Bank, N.A. (NMLS# 494788) is a Member FDIC and a wholly owned subsidiary of Banco Santander, S.A. © Santander Bank, N.A. All rights reserved. Santander, Santander Bank and the Flame Logo are trademarks of Banco Santander, S.A. or its subsidiaries in the United States or other countries. All other trademarks are the property of their respective owners.

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