Hi all: I hope your day is off to a great start. I wanted to share with you about Private Mortage Insurance or PMI. First of all, a definition is in order. Private Mortgage Insurance (PMI). Policy protecting the holder against loss resulting from default on a mortgage loan.
In other words, private mortgage insurance or PMI is a policy a lender will require in case of default on a mortgage loan. These days, private mortgage insurance is required if you have less than 20% to put down on a purchase or if you choose an FHA loan (3.5% down). PMI is required until your loan-to-value (equity) is either at least 20% or, in an FHA loan's case, for five years.
A few years ago, private mortgage insurance was practically non-existent as every lender offered second mortgages or lines of credit instead. That isn't the case today. Again, private mortgage insurance is now required in most cases if your loan-to-value is greater than 80%. Usually you will be making this monthly payment for the first few years of your loan at a minimum. When we first bought our house, we put 5% down. Between paying off the principal balance and having our home value increase, we were able to have our PMI removed after a couple of years.
You can easily go online to calculate how much more your payment will be with private mortgage insurance. PMI tends to be credit score driven in most cases so keep this in mind. Your other avenue is to contact a loan professional who can help you.
I hope this has been helpful to you. Again, private mortgage insurance is imposed to protect the lender in case of default. Have a great day!
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