Mortgage Insurance (PMI) Can Be Avoided
One of the items
you may be faced with when you purchase a new home, or do a mortgage refinance is private mortgage insurance, or
PMI. This insurance also goes by other names; with an FHA loan it
is called MI, with the VA it's a funding fee, and with a conventional loan it is the PMI. Because not every loan requires PMI, you may want to shop around for a loan
that doesn't require it. Your loan officer should go through the
steps of the loan with you and advise you of all the fees, points and down payment money that will be required
to close on the loan. This way you can be prepared to meet the
obligations when they arise.
usually required by lenders when the loan you want when mortgage refinancing or purchasing a home is more than
80% of the appraised value of the house. This means that it
is really an insurance designed to protect the lenders who loan to people who have less than a 20% down payment,
or less than 20% home equity in the home they are getting the loan on. Because this is such large amount of money for people to come up with before
purchasing a home, both the Federal government and private insurance companies began to insure the risk that
lenders would take if less than the 20% was included as a down payment. As you can see, this insurance protects the lender, but is paid by the
are looking at a new home loan or even a mortgage refinance, this 20% rule will apply to you. Your options with a new home would be to put down a large down payment or to
get a second lien on the home. For a conventional loan, a second
lien may make sense because a portion of the money paid each month pays down the principal, while all of the
payment on PMI goes to the insurance company. However, if you are
looking at a bad credit mortgage, the second lien is not an option.
private mortgage insurance to your monthly payments needs to be considered in your budget when determining how
much of a loan you can comfortably afford. The last thing you want
to do is get into more debt that you can easily handle. This is a
big burden to carry and can be extremely stressful. Getting into
debt over your head can even lead to foreclosure.
that if you were required to purchase PMI, if the market value of your home increases so that you have at least
20% equity, you can drop the PMI. Because you are constantly paying
on the principal and your home is more likely to increase in value than to decrease, it is good to know that you
won't have to pay PMI forever.