What Is Private Mortgage Insurance

February 24, 2015 3:19 pm

76_2536518From knowing the best real estate agents in town to giving you the best possible advice about your financial goals, Fairway understands how to help you buy a home. We promise to make your loan experience a positive one from the moment you submit your application. I am always here to answer any questions that you may have and explain all the variables.

Depending on the loan you choose, you may discover that you will need PMI, or Private Mortgage Insurance, to secure your mortgage. If your down payment for a home is less than 20%, lenders may require that you purchase PMI. This will protect the lender if you are unable to pay your mortgage. In other words, mortgage insurance guarantees your lender will be paid if you default on the loan. The benefit to you is that mortgage insurance allows you to purchase a home before you have the full 20% down payment saved.

For sake of example, let’s say you buy a $175,000 house and make a 10% down payment, meaning that you borrow $157,500. The mortgage insurer charges an annual premium of 0.49 percent. The insurer multiplies the loan amount by 0.0049, for an annual premium of $771.75, which is divided into 12 monthly payments of $64.31.

You can avoid paying mortgage insurance premiums by putting down 20% or more when you buy your home. If you aren’t able put down 20%, I can offer you a variety of options that may work. That’s the advantage of working with a lending expert! You may find that you are 434_3008983actually better off paying PMI than any of the other alternatives. Once a borrower has built up a certain amount of equity in the house (typically 20%), the mortgage insurance policy usually can be cancelled.

Keep track of your payments on the principal of the mortgage. When you reach the point where the loan-to-value ratio hits 80%, notify the lender that it is time to discontinue the PMI premiums. Federal law requires lenders to tell the buyer at closing how many years and months it will take for them to reach that 80% level and cancel PMI. Lenders must automatically cancel PMI when the balance hits 78%.

Don’t forget that PMI allows you the options to buy a house before you save up a 20% down payment. Let’s talk through all of your options before you decide what type of loan is right for you. Buying a new home can be very emotional as you balance the excitement with the worry and doubt that comes from making a larger purchase. With today’s lower home mortgage loan interest rates, right now is one of the best times to consider all of your home buying or selling options. Call me today!

 

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