PMI has been a mystery to home buyers for as long as it has been in existence. It's that insurance that almost every home buyer has to get in order to buy a home with less than a twenty percent down payment. It is essentially insurance for the lender that covers the amount between what you put down and eighty percent of the value of your home. The larger your down payment, the less PMI you need. As your home increases in value or you pay down your mortgage, it's important to keep an eye on how much you owe on your home compared to what it is worth. Once your owe eighty percent or less of your homes value, you need to contact your mortgage company about having the PMI coverage removed from your payment. This could save you a significant amount every month. The bank will require an appraisal and the process may take a month or so, but it's well worth it.
In the past PMI seemed to be available to anyone who was approved for a loan by their lender. As a REALTOR with 13 years of experience, I had never heard of someone not being approved for Private Mortgage Insurance. However, that came to a halt recently when one of my clients didn't get approved for PMI right before the closing of their new home! With the foreclosure crisis happening in so many parts of this country, PMI companies are possibly being hit the hardest! With that being said, they are tightening their belt on the types of loans that they will insure. FHA loans are not affected by PMI as they are insured by the federal government which approves the loan and the mortgage insurance at the same time. Higher risk loans are what they are afraid of. Clients with high credit scores sometimes qualify for "No Doc" types of loans that don't require them to provide any type of paperwork to prove they are qualified to purchase the home. This has been a great program for self-employed folks for years because so many times it's very hard to document their actual income. However, PMI companies are now rejecting most undocumented types of loans, especially from self-employed people who have not been in business very long.
So, the moral of the story is, PMI is something you really need to think about. First, if you have it on your current loan, make sure to watch your home's value so you don't keep paying it unnecessarily. Second, if you are getting a loan, use an experienced lender that is up on market trends and ask them to get your private mortgage insurance approved early on instead of right before closing. If you don't' get approved, you will have to either put more money down or change your loan program to one that will approve you for PMI.
If you have any questions about financing your new home, feel free to email me anytime at rclaylee@yahoo.com.
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