What Is PMI and Why Do We Need It?
What is PMI? PMI is "Private Mortgage Insurance". This is extra insurance that lenders require to be purchased when the borrower's loan, compared to the value of their home is more than 80% of its value.
Why PMI? PMI allows more flexibility for potential homebuyers to get more home faster, and for less of a down payment, say 3% or 5%. PMI insures the lender in case of default from the borrower, which frees up funds which would normally not be available to some homebuyers due to credit, reserves, or other factors that determine a borrower's strength.
Does Every Loan Have PMI? Most all residential mortgage loans in one shape or another have PMI, whether it is paid by the Borrower, or the Lender. Government loans such as FHA and VA do not have the same requirements as Conventional Loans. Since they are secured by the U.S. Government, they can be higher risk, but not need as much insurance protecting the Lender from default.
How Do I Cancel PMI? As of July, 29th, 1999 under the Homeowner's Protection Act, PMI can be canceled only when the mortgage has been paid down to at least 80% of the purchase price or the homes appraised value, which ever is less. In addition to the value requirements of canceling PMI, the Borrower must not have been 30 late on any mortgage payment for a full year before their request for cancellation, and not 60 days late for the prior two years. PMI automatically cancels when the loan amount is paid down by 78% of the original amount, or an appraisal is done to determine the value of the home compared to the outstanding loan amount is under 80%. In addition to automatic cancellation, PMI is terminated completely when the loan reaches the midpoint in its amortization schedule, which for a thirty year mortgage, would be the 180th month.
Who Cancels My PMI? Under the Homeowner's Protection Act, the lender must annually send a statement concerning the condition of the loan, and the options for canceling PMI. This includes the potential cancellation date, phone number, and address where the customer may contact to proceed with PMI cancellation.
For more information on PMI and ways it helps our industry, go to
http://www.privatemi.com/
http://www.mgic.com/
http://www.hud.gov/
http://www.heritagehomelaons.org
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Brad,
Thanks for your comment on my blog. Aaron is a mortgage lender I have started to work with who has also agreed to contribute to my blog...his email is the blog if you wanted to shoot him an email to say hi! I also let him know you say hello!