What is PMI?
“PMI” is Private Mortgage Insurance. When you purchase a home, if your down payment is less than 20% the lender will require that you pay for PMI. This insurance policy is taken out on behalf of the lender, to protect the lender’s investment in the event that you default on the loan. It is normally included in your monthly loan payment, along with your normal homeowner’s insurance and property taxes.
Private mortgage insurance, or PMI, insures the lender against a default. It is required when the borrower is making a cash down payment of less than 20 percent of the purchase price. PMI costs vary from one mortgage insurance firm to another, but premiums usually run about 0.50 percent of the loan amount for the first year of the loan. Most PMI premiums are a bit lower for subsequent years. The first year’s mortgage insurance premium is usually paid in advance at the close of escrow, and there is usually a separate PMI approval process. Lenders generally turn to a list of companies with whom they regularly work when lining up private mortgage insurance. In most cases, PMI can be dropped after the loan to value ration drops below 80 percent. The Homeowners Protection Act requires PMI to be dropped when the loan-to-value ratio reaches 78 percent of the home’s original value AND the loan closed after July 29, 1999. For other loans, find out from your lender what procedure to follow to ha
