Private Mortgage Insurance Pmi Home Loan

Avoid the Dreaded PMI

Private Mortgage Insurance, PMI, is simply an insurance policy that consumers pay for on behalf of their lender when the down payment is less than 20 percent. If a lender has to foreclose, they run the risk of not recouping their costs if equity is less than 20 percent, so an insurance policy is necessary.

PMI is a great solution for consumers who desire a low down payment. But, many choose not to purchase until they have a 20 percent down payment and that can take time. PMI is an additional monthly payment and understandably it is obvious why people would rather not have it. Many lenders now offer what is called Lender Paid Mortgage Insurance Programs or, LPMI. With this program, you can put as little as 5 percent down and avoid paying PMI. Now, there is no free ride, but if the numbers work out for you, it could make sense. With the LPMI program, the interest rate is .25 percent - .5 percent higher than the going rate. There could be some additional closing costs as well. The good news, with rates as low as they are and possibly moving lower once again, what is wrong with an interest rate in the 4s on a 30-year fixed mortgage without PMI? You may not get the lowest rate, but it’s still pretty darn low. The second way to avoid paying PMI, and this is my favorite, is to use another program offered by mortgage insurance companies. The way it works is that there is a one-time charge to avoid PMI for the life of the loan. The charge varies depending on how much money is put down and what your credit scores are. Let’s assume that the cost is 1.5 percent of your loan amount. On a $250,000 loan amount, that would equate to $3,750.

On the surface, that seems steep, but it still makes sense. In a worst case scenario, if you had to pay $150 per month in PMI, by paying the $3,750 up front, after three years or so, you will break even and then be ahead of the game for the duration of the loan. The better way to handle this is to simply ask the seller to assist with closing costs. If you structure your offer with a 1.5 percent seller assist, then this charge is offset and you win from day one. There is no increase in interest rate either, so with this solution, you can get a market rate and avoid PMI. This makes a 10 percent down option very attractive. The media certainly will never speak of this as they seem to have more stories out there on how hard it is to get mortgages, but that is one of the points of this column and why I named it The Other Side as it is my main objective to share with you information that you won’t hear on TV or read about online, unless it is coming directly from industry professionals such as myself.

PMI Mortgage Insurance: How to Save On Your Private Mortgage ...

So, you’re putting less than a 20% down payment on the house you are buying and you are getting a conventional loan. Your lender has given you the option of paying a monthly private mortgage insurance (PMI) premium or offering you a higher rate where the lender pays it, known as lender paid mortgage insurance (LPMI). Which scenario is better for you? You’re confused and don’t really understand it all; you’d prefer to just have the decision made for you rather than weigh the options yourself. However, if you don’t consider all the options, you could be making a financial mistake.

Cancel your PMI mortgage insurance as soon as you can. Most PMI’s can be canceled once you’ve put enough equity into your home to equal 20 percent of the loan amount, or the home has appreciated enough in value to bring up the value of your initial investment. This cancellation won’t happen automatically though; you need to actually call up your bank and get the ball rolling. To cancel your PMI, you’ll need to prove the current market value of your home and that you’ve paid at least 20 percent of the equity initially borrowed to purchase the home.

Will this higher mortgage rate save you money? It depends on your situation and how much more the PMI premium will add to your payment. There is another factor to consider when opting for a higher mortgage rate; you gain a tax advantage with the no Private Mortgage Insurance loan because PMI premiums are not tax deductible.

Are you a veteran? Through the Department of Veterans’ Affairs home buying program, you may be eligible for mortgage insurance coverage through the VA. They’ll insure a purchased home, up to 100 percent financing, and save you the cost of private mortgage insurance (PMI). There are limits though on the price of the home, and this will fluctuate depending on your region or county.

Consult with a broker. Before you opt for your bank or lending institution’s standard PMI, ask if you can obtain your own private mortgage insurance. You can sometimes find lower rates from a private insurer rather than going directly through your bank.

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