Understanding Private Mortgage Insurance
When applying for a conventional loan, borrowers will typically need to come to the table with 20 percent down. If a borrower isn't able to come up with the funds, lenders may look at the loan as a risky investment, but may still move forward, but require the borrower to take out Private Mortgage Insurance. This may seem like a great opportunity for many borrowers, but it's important to know what you're agreeing to before signing the dotted line. So, this week, MHQ Mortgage Headquarters is sharing with you information about PMI: What it is; What you need to know; Other options; and how to cancel it when you're able.
What is Private Mortgage Insurance (PMI)?
Private mortgage insurance (PMI) is a type of mortgage insurance that you may be required to pay if you obtain a conventional loan and pay a down payment of less than 20 percent of the home's purchase value. This insurance is required to protect the lender's interest when loaning to a borrower with little or no equity or money to pay down. PMI is arranged by the lender and provided by private insurance companies. If you’re refinancing with a conventional loan and your equity is less than 20 percent of the value of your home, PMI is also usually required.
What to Consider Before Getting a Loan Requiring PMI
Like other kinds of mortgage insurance, PMI can help you qualify for a loan that you might not otherwise be able to get. But, it may increase the cost of your loan. And it doesn’t protect you if you run into problems on your mortgage, it only protects the lender. You may also want to consider saving up the money to make a 20 percent down payment. When you pay 20 percent down, PMI is not required with a conventional loan. You may also receive a lower interest rate with a 20 percent down payment.
Check into Other Loan Options
Borrowers making a low down payment may also want to consider other types of loans, such as an FHA loan. Other types of loans may be more or less expensive than a conventional loan with PMI, depending on your credit score, your down payment amount, the particular lender, and general market conditions. The mortgage professionals at Mortgage Headquarters of Missouri can help you determine the best loan option for your financial situation.
Cancelling PMI
While lenders have been legally required (for loans closed after July 1999) to cancel Private Mortgage Insurance (PMI) at the point the mortgage balance goes under 78% of the purchase price, they do not have to take similar action if the loan's equity is over 22%. (There are exceptions -like some loans considered 'high risk'.) But you have the right to cancel PMI yourself (for loans made after July 1999) at the point your equity reaches 20 percent, no matter the original price of purchase.
Keep a record of payments and study your statements often. Find out the selling prices of other houses in your immediate area. Unfortunately, if yours is a new loan - five years or fewer, you likely haven't had a chance to pay very much of the principal: you have been paying mostly interest.
Once you think you've reached 20 percent equity, you can begin the process of freeing yourself from PMI payments. You will need to contact the mortgage lender to let them know that you want to cancel PMI. The lending institution will request documentation that your equity is at 20 percent or above. A state certified appraisal using the appropriate form (URAR-1004 - Uniform Residential Appraisal Report) documents your equity amount - and your lender will probably require one before they'll cancel PMI.
Trust MHQ Mortgage Headquarters for Your Mortgage Needs!
Now that you know more about Private Mortgage Insurance, how it can affect your loan, and how to get rid of it once you're able, you can make an educated decision on whether a loan requiring it is right for you. We can help you make that choice or look into other loan options that you may qualify for. We've got more than 20 years of experience in the mortgage lending industry, and make it our business to find the right mortgage for our clients' financial needs! Ready to buy a home? Let's talk mortgage options!
Mortgage Headquarters of Missouri, Inc
4824 Osage Beach Parkway, Suite 1
Osage Beach, MO 65065
Office: (573) 302-9990
Toll Free: (888)799-1206
Fax: (636)648-9917
Email: info@mhqmortgage.com
NMLS # 1229111
What is Private Mortgage Insurance (PMI)?
Private mortgage insurance (PMI) is a type of mortgage insurance that you may be required to pay if you obtain a conventional loan and pay a down payment of less than 20 percent of the home's purchase value. This insurance is required to protect the lender's interest when loaning to a borrower with little or no equity or money to pay down. PMI is arranged by the lender and provided by private insurance companies. If you’re refinancing with a conventional loan and your equity is less than 20 percent of the value of your home, PMI is also usually required.
What to Consider Before Getting a Loan Requiring PMI
Like other kinds of mortgage insurance, PMI can help you qualify for a loan that you might not otherwise be able to get. But, it may increase the cost of your loan. And it doesn’t protect you if you run into problems on your mortgage, it only protects the lender. You may also want to consider saving up the money to make a 20 percent down payment. When you pay 20 percent down, PMI is not required with a conventional loan. You may also receive a lower interest rate with a 20 percent down payment.
Check into Other Loan Options
Borrowers making a low down payment may also want to consider other types of loans, such as an FHA loan. Other types of loans may be more or less expensive than a conventional loan with PMI, depending on your credit score, your down payment amount, the particular lender, and general market conditions. The mortgage professionals at Mortgage Headquarters of Missouri can help you determine the best loan option for your financial situation.
Cancelling PMI
While lenders have been legally required (for loans closed after July 1999) to cancel Private Mortgage Insurance (PMI) at the point the mortgage balance goes under 78% of the purchase price, they do not have to take similar action if the loan's equity is over 22%. (There are exceptions -like some loans considered 'high risk'.) But you have the right to cancel PMI yourself (for loans made after July 1999) at the point your equity reaches 20 percent, no matter the original price of purchase.
Keep a record of payments and study your statements often. Find out the selling prices of other houses in your immediate area. Unfortunately, if yours is a new loan - five years or fewer, you likely haven't had a chance to pay very much of the principal: you have been paying mostly interest.
Once you think you've reached 20 percent equity, you can begin the process of freeing yourself from PMI payments. You will need to contact the mortgage lender to let them know that you want to cancel PMI. The lending institution will request documentation that your equity is at 20 percent or above. A state certified appraisal using the appropriate form (URAR-1004 - Uniform Residential Appraisal Report) documents your equity amount - and your lender will probably require one before they'll cancel PMI.Trust MHQ Mortgage Headquarters for Your Mortgage Needs!
Now that you know more about Private Mortgage Insurance, how it can affect your loan, and how to get rid of it once you're able, you can make an educated decision on whether a loan requiring it is right for you. We can help you make that choice or look into other loan options that you may qualify for. We've got more than 20 years of experience in the mortgage lending industry, and make it our business to find the right mortgage for our clients' financial needs! Ready to buy a home? Let's talk mortgage options!
4824 Osage Beach Parkway, Suite 1
Osage Beach, MO 65065
Office: (573) 302-9990
Toll Free: (888)799-1206
Fax: (636)648-9917
Email: info@mhqmortgage.com
NMLS # 1229111
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