Basics Of Private Mortgage Insurance

Basics Of Private Mortgage Insurance
Basics of​ Private Mortgage Insurance (PMI)
General conventional loans require 20% of​ the​ selling price as​ a​ down payment .​
This is​ often the​ largest hurdle for many potential home buyers .​
In order to​ make buying a​ home more affordable,​ lenders devised a​ solution to​ allow for smaller down payments and still minimize their own risk – private mortgage insurance.
Borrowers with less than 20% for a​ down payment may be required to​ apply for private mortgage insurance .​
The PMI company then insures the​ lender,​ generally for the​ top 20% of​ the​ mortgage,​ in​ case of​ borrower default .​
The amount that the​ borrower is​ required to​ pay for PMI depends on​ the​ type of​ loan,​ the​ loan-to-value ratio,​ and the​ insurer .​
However,​ it​ is​ the​ lender,​ not the​ borrower,​ that shops for the​ PMI company and program,​ so there are some important questions to​ ask lenders about PMI.
· How many company’s PMI programs will be considered?
· How does the​ selected policy compare to​ others in​ the​ marketplace in​ its:
– Rates
– Insured loan-to-value ratio
– Procedure for requesting removal of​ PMI
The PMI company will consider your application with many of​ the​ same guidelines as​ the​ lender,​ namely your credit,​ employment,​ and reserves .​
Additionally,​ they will consider the​ property being purchased and such questions as:
· Does the​ loan have a​ teaser rate which will increase payments in​ the​ future?
· to​ what financial degree is​ the​ seller contributing?
· How stable is​ the​ borrower’s employment?
· is​ the​ economy of​ the​ area stable?
· How is​ the​ neighborhood where the​ property is​ located?
Luckily,​ for conventional loans,​ PMI is​ not something that must paid for the​ life of​ the​ loan .​
For loans originated after July 29,​ 1999,​ once the​ borrower has reached 22% equity and payments are current,​ the​ federal government requires that the​ lender remove the​ PMI .​
The borrower can petition the​ lender to​ remove the​ PMI at​ any time .​
This usually will require documentation of​ an​ appraisal and sufficient and timely payments .​
Be aware of​ which appraisers are approved by your lender – lenders can choose not to​ accept the​ appraisal if​ it​ was not done according to​ the​ lender’s guidelines.

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