What is PMI?
Private Mortgage Insurance (PMI) may be required if your down payment is less than 20% of the purchase price. • This insurance protects the lender in case a borrower defaults on the loan. • The percentage of required PMI each month depends upon the loan amount, the type of loan and the down payment. • There is a loan alternative that does not require PMI. Ask a financial advisor about this option.
Private Mortgage Insurance (PMI) is often a necessary expense that accompanies buying a house with less than 20% down in cash. By definition, PMI is insurance designed to protect the lender from individuals who default on their loans and who have less than 20% equity in their property. Therefore, lenders require buyers putting less than 20% down to purchase PMI to insure the cost of risks like foreclosure. PMI has its up side for buyers, too. About 30% of homebuyers, most of them first-timers can’t put together enough cash for a 20% down payment. PMI allows many people to purchase property years earlier than they otherwise would have been able to. Buyers who are required to purchase PMI have to pay for that additional security, but they gain from being able to get a mortgage with much less cash up front. PMI is however tax deductible, much like mortgage interest would be. Somerset Lending Corp™ prides itself in offering loans with less than 20% down/equity with no PMI. Ask us how.
Private Mortgage Insurance (PMI) could be required by the lender if the down payment constitutes less than 20% of the purchase price. This insurance is used as a precaution for the lender in the event of loan default by the borrower. The monthly premium (figured into the monthly payment) is dependent on the loan amount, type of loan, and down payment. PMI costs usually range from 0.15 to 2.5% of the loan. Usually, two payments in advance are required at closing which is then put into escrow account.
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.
Private Mortgage Insurance (PMI) is usually mandatory for loans when the ratio of the amount of the loan to the value of the subject property is greater than 80 percent — that is, 80.01 percent% or more of the property is being paid for by the loan. Loan-to-value ratio (LTV) knows this as the loan. Basically, the lower your Loan-to-value ratio, the higher your equity in the property. You can think of equity as the part of your property you actually own. If you sold your property (for its appraised value), equity is the amount of cash you’d have left after you repay your loan balance in full. Common wisdom holds that the more equity a borrower has in a property, the lower the risk of defaulting on the loan. Thus, Private Mortgage Insurance (PMI) must be paid for lower equity (high LTV) loans to safeguard the lender from possible loan defaults.
