Private Mortgage Insurance Your Rights And Responsibilities

Private Mortgage Insurance Your Rights And Responsibilities

Private Mortgage Insurance – Your Rights and Responsibilities
An often overlooked cost of​ buying a​ new home is​ private mortgage insurance,​ usually simply called PMI .​
The basic idea behind PMI is​ simple .​
When a​ home buyer buys a​ house with less than 20% of​ the​ home’s value as​ a​ down payment,​ the​ mortgage lender assumes a​ larger risk .​
In most cases,​ the​ lender will require that the​ buyer – that’s you​ – purchase private mortgage insurance that will pay off your mortgage if​ you​ default on​ it .​
Because PMI is​ an​ added expense for the​ consumer,​ the​ federal government has a​ number of​ regulations regarding PMI .​
There are specific rules that mortgage lenders must follow if​ you​ signed (or will sign) a​ mortgage after July 29,​ 1999 .​
That’s when the​ Homeowner’s Protection Act of​ 1998 (HPA) went into effect .​
In addition,​ many states have their own laws regarding private mortgage insurance that are designed to​ protect homeowners and save them money.
Like many other things about buying a​ new home,​ the​ rules surrounding private mortgage insurance can be confusing .​
Here are some answers to​ commonly asked questions about PMI to​ help make it​ a​ little clearer.
Who has to​ pay PMI?
Most lenders require private mortgage insurance from home buyers who put down less than 20% of​ the​ total value of​ their home – or​ conversely,​ who borrow more than 80% of​ the​ total value of​ their home .​
This isn’t a​ hard and fast rule,​ though .​
Many lenders are loosening their requirements for PMI to​ buyers with good credit,​ or​ who meet other requirements.
How much does PMI cost?
Usually,​ the​ premiums on​ private mortgage insurance are about .5 percent of​ your loan total .​
If you​ take out a​ mortgage for $100,​000,​ the​ PMI premium for the​ first year will be around $500 .​
On a​ $200,​000 mortgage,​ you’ll pay about $1,​000 for the​ first year’s premium .​
Usually,​ your premiums will be lower each year,​ since it’s based on​ the​ amount that you​ owe on​ your mortgage.
When do I​ have to​ pay the​ PMI premiums?
Most lenders require that you​ pay the​ first year’s premium at​ closing,​ so don’t forget to​ add it​ in​ when you’re figuring out your closing costs .​
For subsequent years,​ you’ll pay it​ along with your monthly mortgage payment .​
Do I​ have to​ pay for PMI until my mortgage is​ paid off?
No .​
The length of​ time you​ have to​ maintain PMI varies from state to​ state and lender to​ lender,​ but you​ can generally cancel your PMI when you​ have between 20% and 25% equity in​ your home .​
The actual PMI percentage depends on​ the​ default mortgage rate in​ your state .​
There are usually other requirements as​ well,​ such as​ no late payments in​ the​ year before you​ request cancellation,​ and no other mortgages or​ liens against your property.
How do I​ cancel my PMI?
Under the​ provisions of​ the​ HPA,​ your lender must automatically terminate your PMI when you’ve paid down your mortgage to​ 78% of​ the​ original purchase price or​ the​ appraised value of​ your home when you​ bought it,​ whichever is​ less,​ as​ long as​ your mortgage payments are current when you​ reach 78% .​
If the​ mortgage was considered a​ high risk loan,​ it​ can be when you​ reach 77%.
What does my mortgage lender have to​ tell me?
When you​ close on​ your house,​ you​ must be informed of:
- the date that you​ can request cancellation of​ PMI
- when your PMI will be automatically terminated
Once a​ year,​ you​ must be informed of:
- your right to​ cancel or​ terminate your PMI
- a contact address or​ phone number where you​ can find out when you​ can cancel your PMI
When your PMI is​ canceled,​ you​ must be informed that:
- Your PMI has been canceled,​ and you​ no longer have private mortgage insurance
- You no longer have to​ pay premiums for your private mortgage insurance.
What this all means is​ in​ terms of​ researching your home purchase,​ be wary of​ PMI consideration .​
Do your homework and determine what the​ best scenario is​ for you.

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