Traditional conforming home mortgages require private mortgage insurance (PMI) if you make a down payment that’s less than 20% of the home’s purchase price.
PMI adds a fee, usually from 0.5% to 1.5% of your loan amount, to your monthly mortgage payment.
This fee pays for mortgage insurance, which protects your lender’s interest in your loan if you stop making the payments. In other words, you pay, and your lender gets the protection.
SoFi is an exception. This company lets you get a mortgage with only 10% down and no PMI charge.
Everything you need to know about SoFi mortgages
What’s the catch?
The catch is that the interest rate on your loan will be higher and you’ll pay that higher rate as long as you keep your loan.
Our rates are priced to account for lender-paid PMI.”
In exchange, SoFi will pay for your PMI. This approach is known as lender-paid mortgage insurance or LPMI. The PMI doesn’t disappear. It’s just “baked into” your loan through a higher rate instead of as a separate charge.
Anna Fabian, vice president of mortgage at SoFi, explains, “Our rates are priced to account for lender-paid PMI.”
Whether your monthly payment will be higher or lower with LPMI instead of PMI isn’t easy to figure out. It depends on the type of loan you choose, your credit score, your down payment, and other factors your lender may consider.
What about jumbo loans?
SoFi also offers jumbo loans with a minimum 10% down payment. You’ll need a jumbo if you want to borrow more than the Fannie Mae loan limit in your county.
Is there a maximum loan limit?
The maximum for a conforming loan limit in 2020 for a single-unit home in most of the U.S. is $510,400. Limits are higher for duplexes, triplexes, four-unit homes, and single-unit homes in states where housing is very expensive. Jumbo loans don’t require PMI.
Other small-down, no PMI mortgages
SoFi isn’t the only lender that uses LPMI, nor is LPMI the only way to get a mortgage with less than 20% down and no PMI.
Here are four other options to consider:
1. Piggyback loan
With this strategy, you make a 10% down payment and get an 80% conventional loan and 10% second, or “piggyback,” loan. The piggyback could be a second loan with a fixed rate or home equity line of credit (HELOC) with a variable rate.
2. FHA loan
Insured by the Federal Housing Administration (FHA), this loan allows a down payment as low as 3.5%. It requires an upfront mortgage insurance premium (UFMIP) of 1.75% and an annual mortgage insurance premium (MIP), which is paid monthly.
3. VA loan
Guaranteed by the U.S. Department of Veterans Affairs, this loan requires no down payment or mortgage insurance.
Instead, you may have to pay a funding fee. The amount depends on the type of loan, your military service and down payment, and whether the loan is your first or subsequent VA loan.
Shopping for a VA loan? Check out Veteran United Home Loans, USAA, and Quicken Loans
4. USDA loan
Insured by the U.S. Department of Agriculture, this loan requires a 10% minimum down payment, an upfront fee of 1%, and an annual MIP of 0.35%, paid monthly.
SoFi doesn’t currently offer FHA, VA, or USDA loans.
In addition to being one of the top student loan and personal loan lenders, SoFi has a lot to offer for homebuyers as well.
“SoFi’s Mortgage is great to consider if you’re looking for a lower down payment with no additional PMI charge,” Fabian says. “Our underwriting approach may allow you to qualify for more financing than traditional lenders offer.”
But to know if a SoFi mortgage loan is right for you, you need to see how it stacks up against the competition.
You can easily do so on SuperMoney’s home loans review page, where you’ll be able to review top mortgage lenders and compare plans all in one place to find the best one for you.
Marcie Geffner is an award-winning freelance reporter, editor, writer and book critic. Her work has been featured online and in print by The Washington Post, Los Angeles Times, Chicago Sun-Times, Urban Land, Business Start-Ups and Fox Business Network Online, among many other newspapers, magazines, and websites. With a bachelor’s degree in English from UCLA and MBA from Pepperdine University in Malibu, Geffner has impressive credentials in both story-telling and business management. A second-generation native of Los Angeles, Geffner now lives in Ventura, California, a surf city northwest of her hometown.