What is PMI (Private Mortgage Insurance)?
Private mortgage insurance (PMI) is required for borrowers who put up a down payment of less than 20% of the value of the home. PMI is designed to protect lenders from the risk of lending to a borrower with less than 20% equity. On a positive note for the borrower, PMI provides an opportunity for you to get a mortgage with less cash upfront, allowing you to purchase a home sooner than you might if you had to save the 20% for a down payment.
If you put less than 20% down on most loans, you’ll be asked to protect the lender by carrying private mortgage insurance (PMI). Carrying PMI ensures that the debt is repaid if you default on the loan. This charge adds approximately an extra half a percent onto the loan. FHA mortgages, in return for their low-down-payment requirements, also charge for mortgage insurance premiums (MIP). Back to Top 11. I am a first time buyer, what is the best way to get started looking for a home? The first step a potential buyer should take is to get pre-approved by a lender so that you know how much you can afford to purchase before starting to actually look at properties. After pre-approval, the next step would be to locate a real estate agent that can help you determine where and what you would like to buy. Please refer to How is pre-qualification different from pre-approval? Back to Top 12. I already own a home and I am looking to move up, do I need to sell or list my current home prior to making
PMI stands for Private Mortgage Insurance or Insurer. These are privately-owned companies that provide mortgage insurance. They offer both standard and special affordable programs for borrowers. These companies provide guidelines to lenders that detail the types of loans they will insure. Lenders use these guidelines to determine borrower eligibility. PMI’s usually have stricter qualifying ratios and larger down payment requirements than the FHA, but their premiums are often lower and they insure loans that exceed the FHA limit.
PMI is money paid to insure the lender against loss due to foreclosure or loan default. Mortgage insurance is required on conventional loans with less than a 20 percent down payment. FHA mortgage insurance requires a payment of 1.5 percent of the loan amount to be paid at closing, as well as an annual fee of 0.5 percent of the loan amount added to each monthly payment. What is Lender Paid Mortgage Insurance (LPMI)? With the LPMI option, the lender pays your mortgage insurance through a higher interest rate, allowing you to avoid mortgage insurance with less than a 20% down payment. Even with the higher interest rate, your total payment is usually less than if you had a lower interest rate with mortgage insurance. You can now enjoy a low payment without having to take out a second mortgage or home equity line of credit. This maximizes your tax-deductible interest and minimizes closing costs. Other programs available with no PMI: My Community Mortgage – also available with the option of
