What is Private Mortgage insurance?
Every lender wants to protect itself in case a borrower defaults on a loan. That’s what private mortgage insurance does. Homebuyers who don’t fork over a cash down payment of at least 20 percent of the purchase price may be required to buy private mortgage insurance, or PMI, for the lender. That’s right. You buy insurance to protect them from loss.THE COST If you need PMI, your lending officer will generally refer you to a mortgage insurance firm he or she works with. PMI costs vary, but premiums run about 0.50 percent of the loan amount for the first year of the loan, which you usually pay at the close of escrow. Most premiums are lower for subsequent years. Once you have at least 20 percent equity in the home, PMI can be dropped. 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. WAYS AROUND IT PMI is so unpopular with buyers that lenders look for ways around it
Many prospective home buyers are financially prepared for the day-to-day cost of owning a home. What they lack is the lump sum of money required up front: a 20% down payment. That’s where private mortgage insurance (MI) comes in. MI is insurance that protects the lender against loss in case of default by the borrower. With the insurance, a lender can loan up to 100% of the value of a house – or even higher in some states, depending on the borrower’s credit history. Mortgage insurance is not a form of life insurance; it won’t pay off your mortgage loan in the event of a death. And no part of your premium is used to pay a commission or points to the lender. Your entire premium goes to provide coverage. Mortgage insurance plans are available for most types of loans and with varying premium payment options. Your lending professional can help you choose the plan that best suits your needs. Mortgage lenders apply to MI companies for coverage; you are not required to complete additional forms
Private Mortgage Insurance, or PMI, is insurance purchased by the buyer to protect the lender in case the buyer defaults on the loan. PMI is generally applied when you put down less than 20% of the home’s purchase price. [Back to top] After you apply Upon completing Your 27 Second Application, Your Neighborhood Mortgage Expert Team will promptly send you a list of additional items (i.e. bank statements) to compile as well as the proper state mortgage disclosures for your signature. Typically, the list and disclosures are sent via email. Once you have compiled the items and signed the disclosures, you will return the information to your Neighborhood Mortgage Expert Team at no cost to you.
