What is Private Mortgage insurance?
A.Private Mortgage Insurance (PMI) is insurance for the Lender in case the borrower defaults on the mortgage and the property goes into foreclosure. PMI is placed on any conventional loan where the loan amount is greater than 80% of the sales price. PMI benefits the borrower by allowing him/her to put a smaller down payment on the home. Therefore the home can be purchased today rather than waiting until more money is saved up for a down payment of 20%.
Private Mortgage Insurance is a type of guaranty that helps protect lenders against a loss due to foreclosure. This insurance protection is provided by private mortgage insurance companies. It allows lenders to accept lower down payments than you would normally be allowed. In effect, it substitutes for the borrower’s equity that would be available to cover a lender’s losses in the unfortunate event of foreclosure.
Private mortgage insurance (PMI) is a way for buyers to get around the normal 20 percent down payment and still buy a home. It especially helps first-time homebuyers who don’t have proceeds from their previous home’s sale to help finance the new purchase. Essentially it works like this: In exchange for being able make a down payment as low as 3 percent (depending on the lender and your situation), you agree to pay private mortgage insurance until you have paid the equivalent of 20 percent of your home’s purchase price. This is because mortgage lenders feel more secure that they could recoup their losses if you default on your loan. Although you are paying the premiums, it’s the mortgage lender — not you — who is protected by private mortgage insurance. Since it can take years to save 20 percent of the purchase price at today’s home values, PMI lets you buy a home sooner. According to the National Association of REALTORS®, during the second quarter of 2006, the median home price of ex
