How to Calculate PMI in Texas

When you borrow money to purchase a home, the lender needs assurance that they will get their money back if something should happen and you were to default. This is where private mortgage insurance (PMI) comes into play. This is insurance that you will pay to a private company your lender would be able to collect if you default. The next question you probably have is: How much is mortgage insurance in Texas?

One of the main factors that will determine the amount you will pay in PMI is the loan-to-value percentage. Generally, if the percentage is more than 80 percent, the lender will require PMI. Loans where you will be paying less than the standard ​20 percent​ down also require PMI. If you have more than 20 down and meet other requirements determined by the lender, then it is possible you might not need to purchase PMI. However, these cases are the exceptions rather than the rule even for those who have excellent credit.

Also, once certain conditions are met, you have the option to cancel PMI in most cases. A few exceptions are mortgages that are backed by the Federal Housing Administration (FHA) or the United States Department of Agriculture (USDA). These institutions require you to carry PMI for the full term of the loan.

If you want to discontinue paying PMI, you will probably have to pay down your loan significantly and have an appraisal to do so. One thing to consider is the property value of other homes in your neighborhood and how it might affect the appraisal before you decide to do this.

The average PMI rates in Texas are between ​0.5 percent and 6 percent​. The requirements and rates are set by individual lenders within state and federal guidelines. Many lenders require the LTV to be ​below 78 percent​, rather than the suggested 80 percent if you live in the home, but it can be reduced to as much as ​65 to 70 percent​ if the home is used as a rental property.

One thing to consider is that if your credit score is low and you are considered a high-risk loan, the lender may require the principle to be reduced to as much as ​77 percent​ of the original value before you will be allowed to drop PMI.

Several factors will affect how much PMI you will pay. For instance, the LTV ratio of the home will determine the percentage rate for the PMI. A higher LTV means a higher cost of insurance. If your home value is $300,000 and you borrow $250,000, the LTV ratio is 83 percent with a down payment of $50,000 required. The loan term will also affect the amount you pay for PMI.

To calculate PMI, you will first need to know the LTV ratio of the property.

​LTV​ = Loan Amount/Home Value x 100

Here is how you calculate your monthly PMI payment.

​PMI Monthly Payment​ = PMI*Loan Amount/12

Let’s use the $300,000 home example from above.

​Loan Amount​ = $300,000

​Mortgage Insurance Rate​ = 0.005

​Annual Mortgage insurance​ = 300,000*.005 = $1,500

​Monthly Payments​ = $1,500/12 = $125 per month

When you begin shopping for a loan, be sure to ask what your PMI will be because this can affect the affordability of the home. Having good credit and making a larger down payment can reduce PMI in Texas. Your lender is the best source of information about the rate you will pay.