PMI and Mortgage Insurance.

PMI and Mortgage Insurance.

If you're new to home ownership and have your eye on a perfect house, you may have heard the terms "PMI" or "MI" tossed around. PMI and Mortgage Insurance are forms of insurance that you pay on your conventional loan if you cannot put down the traditional 20% down payment. Mortgage insurance can initially seem scary to borrowers, and appear to cost more money in the long run. However, in some cases, PMI is a good thing and can offer financial advantages to homeowners.

PMI vs. FHA Loans

Often times borrowers look to FHA loans when they know they do not have 20% down. The large down payment is often the largest hurdle for those purchasing a home. FHA loans are known for their low down payments and less-than-20% down payment options. PMI insurance is another option for homeowners, and can mean big savings for borrowers who qualify. PMI is used in conjunction with conventional loans, and can save thousands of dollars compared to the traditional FHA loans when qualified borrowers apply. Borrowers with good credit can receive lower rates and better loan terms when paying PMI on a mortgage versus an FHA loan.

Compare your mortgage rates now with the PMI vs. FHA comparison loan calculator.

Advantages to PMI - Mortgage Insurance

The key to qualifying for PMI is having good credit. Typically, those with a credit score of 660 or higher can apply for PMI and put only 5% down toward their mortgage. Borrowers with even better credit can even put only 3% down. PMI offers some other attractive benefits to homeowners like:

• The payments are completely tax-deductible (for homeowners with adjusted gross less than $100K) through 2011.
• You can choose how to pay PMI insurance - through monthly payments, an annual payment, or a one-time payment.
• PMI insurance can be cancelled once 80% of the loan is paid down.

If you're shopping for a loan that will allow you to put less than 20% down, and have good credit, consider PMI. By using PMI insurance, you may get a much better mortgage rate and save thousands in the life of your loan.

Contact Darren Copeland at Leader One Financial to get pre-approved today!

Edited: 03-26-13

PMI and Mortgage Insurance.