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Private mortgage insurance is a standard requirement for all
buyers who do not put down 20 percent when they purchase a home.
It covers the bank’s cost of foreclosing in the case you
default on a loan, and insures that the bank will not be at any
loss. Whenever the down payment on a property is 20% or
more, PMI is not necessary, since there’s probably
enough equity to pay for the lender’s potential losses.
PMI is a must have requirement.
In fact, it is almost always included in a monthly payment on
a house, and you do not have the option of changing the company
providing mortgage insurance. You can, however, cancel it under
certain conditions.
Cost of private mortgage insurance.
The cost depends solely on the size of the down payment. If
you put down 10 or 15 percent, it is not going to be a significant
amount of money. For those who are able to enter into a first
time buyer program, where they only put down 3 or 5 percent; the
PMI will account for a large chunk of a home loan monthly payment.
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Canceling your PMI.
Most banks allow you to cancel private mortgage insurance when
the value of the property has increased enough and you owe less
than 80 percent. Some lenders will look at the current market
value of your home, others will count the original home price.
In any case, home appraisal will be required. You also have to
be in good
credit standing in order to cancel PMI.
At the time of buying, it will clearly state in the loan documents
the conditions for canceling PMI. Some banks require that you
keep it for a certain period of time, one or two years, regardless
of the fact of how fast the home may appreciate.
In situations where home value increases rapidly, but you are
still stuck with mortgage insurance for another year or so, it
is best to refinance the home mortgage, effectively getting rid
of PMI.
It is important to remember that almost all FHA financed
loans require private mortgage insurance throughout the whole
life of a loan.
More about this topic: The Mortgage
Insurance Companies of America.
See also: homeowner
insurance
Related topics: PMI
cancellation, FAQ about private
mortgage insurance
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