PMI - Private Mortgage Insurance

 

Title: PMI - Private Mortgage Insurance

Author: Dan Lewis

Article:
Many a first-time homebuyer has grumbled about paying private
mortgage insurance. This article discusses the particulars of
private mortgage insurance, also known as "PMI."

Private Mortgage Insurance

Unless they owners are insane, every business in the United
States carries some form of insurance to protect against losses.
The various lending institutions that issue home loans, equity
lines and refinances to borrowers are no different. The
insurance they carry is private mortgage insurance.

Private mortgage insurance protects a lending institution from
losses if you default on your loan and a home goes into
foreclosure. Essentially, the lending institution is going to be
covered for any shortages between the cost of liquidating the
home and the amount of the loan. This is of particular
importance to a lender when the housing market pulls back from
high valuations. In such a pull back, it is not uncommon to see
the total mortgage balance exceed the value of the home.
Obviously, this makes lenders uncomfortable.

PMI - Premiums

Most homeowners can wrap their minds around the need for private
mortgage insurance. The grumbling starts, however, when they
find out who has to pay for the insurance. Yep, the homeowner is
on the hook. As the homeowner, you are paying for insurance that
will protect the lender if you default. While this may not seem
fair, keep in mind the lender is giving you a rather sizable
chunk of money. If you are still grumbling, there is a way to
avoid paying mortgage insurance.

20 Percent Down

If you take out a home loan, the 20 percent figure will come
front and center in your mind. Why? 20 percent is a magic figure
in the world of home loans and mortgages. If you make a down
payment of 20 percent, you are not required to obtain or pay for
private mortgage insurance. With PMI premiums running $1,000 or
more a year, it makes sense to pay 20 percent as a down payment
if at all possible.

What if you can't scrape together 20 percent of the home value
for the down payment? Well, you're stuck paying PMI, but not
forever. Once your equity in the home reaches 20 percent of the
valuation, you can cancel the PMI. Keep a close on your equity
as lending institutions are under no duty to tell you when the
magic 20 percent figure is reached. Oddly, they almost never
seem to remember!

PMI

Private mortgage insurance is expensive, but you can avoid it
with a sizeable deposit. If you can't come up with that chunk of
change, try to keep in mind the beautiful home and investment
the loan let you acquire.

About the author:
Dan Lewis is a mortgage broker with http://www.gwhomeloans.com -
San Diego mortgage brokers providing home loans and refinances.
Visit http://gwhomeloans.com/services.html to learn more about
options for San Diego mortgages.