Private mortgage insurance: PMI.


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.

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.

Private Mortgage Insurance (PMI)
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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, title insurance

Related topics: PMI cancellation




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