5 Ways to Get a Loan Without Private Mortgage Insurance (PMI), pmi mortgage insurance.#Pmi #mortgage


How to Get a Loan Without Private Mortgage Insurance (PMI)

For many individuals and families who are looking at purchasing a home, or any other real estate, private mortgage insurance (PMI) can be a major cost factor. PMI is a requirement that comes into play if the buyer’s initial down payment is less than 20% of the purchase price. PMI is designed to guarantee the bank’s interest in the property in case the buyer is unable to keep up with the mortgage payments. Many banks advertise loans that only require low down payments, but the cost of PMI may be excessive. It is important to understand that there are several ways to avoid PMI.

Steps Edit

Method One of Five:

Making a Large Enough Down Payment Edit

Pmi mortgage insurance

Pmi mortgage insurance

Pmi mortgage insurance

Pmi mortgage insurance

Method Two of Five:

Using a Piggyback Loan Edit

Pmi mortgage insurance

Pmi mortgage insurance

Pmi mortgage insurance


PMI – What Is Private Mortgage Insurance, pmi mortgage insurance.#Pmi #mortgage #insurance


Private mortgage insurance, or PMI: Just the basics

Pmi mortgage insurance

If your down payment on a home is less than 20%, you will have to pay for mortgage insurance.

What is PMI?

When you make a down payment of less than 20%, the lender requires private mortgage insurance, or PMI. The policy protects the lender from losing money if you end up in foreclosure. PMI also is required if you refinance the mortgage with less than 20% equity.

Private mortgage insurance fees vary, depending on the size of the down payment and your credit score, from around 0.3% to about 1.5% of the original loan amount per year. Some years, PMI premiums are tax-deductible and some years they’re not, depending upon the whim of Congress.

*Rate varies according to size of down payment, credit score and insurer.

Source: Bankrate.com, Radian mortgage insurance calculator

Most PMI policies require the borrower to pay monthly. Borrowers also have the option of paying for mortgage insurance with a large upfront payment.

PMI can be canceled

Your lender must automatically cancel PMI when your outstanding loan balance drops to 78% of the home’s original value. This probably will take several years.

You can speed up the cancellation of mortgage insurance by keeping track of your payments. Once the loan balance reaches 80% of the home’s original value, you may ask the lender to discontinue the mortgage insurance premiums.

To put it another way: You can request cancellation of mortgage insurance when the loan-to-value ratio drops to 80%. The lender is required to cancel private mortgage insurance when the loan-to-value ratio drops to 78%.

Loan-to-value ratio

The loan-to-value ratio, or LTV, describes mortgage debt as a percentage of how much the home is worth. It is a financial term used by lenders.

Formula: Mortgage amount owed / Appraised value

Example: Alex owes $60,000 on the mortgage. The house is worth $100,000.

$60,000 mortgage balance / $100,000 = 0.60. This means that Alex’s loan-to-value ratio is 60%.

We’re talking PMI, not FHA

Recent FHA-insured loans require payment of mortgage insurance premiums for the life of the loan. FHA mortgage insurance premiums can’t be canceled. Instead, you have to refinance the loan. Read “7 crucial facts about FHA loans.”


What Is Private Mortgage Insurance (PMI) – How to Avoid Paying It, pmi mortgage insurance.#Pmi


What Is Private Mortgage Insurance (PMI) How to Avoid Paying It

If you look at your monthly mortgage statement and see a line for PMI, you re paying for private mortgage insurance. It probably costs you between $50 and $200 per month, depending on the balance of your loan and your PMI rate.

But why are you paying it? Essentially, your lender is requiring you to pay the premiums for an insurance policy that partially reimburses them should you default on your mortgage. We ll discuss when you re required to have PMI, what this insurance protects, who needs to carry it, and ways to avoid paying it.

Loan to Value (LTV) Ratio

The loan to value (LTV) ratio is what the lender looks at to determine whether or not you need to pay PMI, and when you can stop paying it. To calculate this ratio, take the amount of the loan and compare it to the current value of your house. For example, if your mortgage is $150,000 and your home is currently worth $200,000, your loan to value ratio is 75%.

When you buy a new home, your lender will look at the amount of your down payment compared to the sales price to determine your loan to value ratio. So if you purchase a home for $200,000 and put $20,000 down, your loan to value ratio is 90%. Typically, if your loan to value ratio is more than 80%, you ll be required to pay PMI.

What Is Private Mortgage Insurance?

When you apply for a mortgage, the lender wants to make sure your home will have enough equity to pay off the loan balance should you default and go into foreclosure. But since foreclosed upon homes are often sold at a discount, lenders want a buffer of at least 20%. In other words, they want to be reasonably sure they can recoup the money they loaned you if the home has to be sold at a lower price than the original sales price.

However, this doesn t mean that lenders are unwilling to write loans when you put down less than 20%. They just charge you more for the privilege via PMI. In this way, you get a mortgage, and they minimize their risk in offering you a loan. Private mortgage insurance is an actual insurance policy issued by an insurance company that benefits your lender. If your home goes into foreclosure and the lender is not able to recoup the outstanding balance by selling the home, the insurance company that issued your PMI will pay the lender the difference.

PMI is called private because it is only offered to private companies and not government agencies or public mortgage lenders. Public programs, such as the FHA and VA mortgage programs, have their own mortgage insurance, but it is run differently and managed internally. However, one notable difference between PMI and mortgage insurance attached to many FHA and VA loans is that the latter never expires. In other words, you will continue paying mortgage insurance on FHA and VA loans even after your loan to value ratio has dropped below 80%.

Who Needs Private Mortgage Insurance?

Generally, if your LTV ratio is less than 80%, you re in the clear. However, if you have poor credit or are otherwise considered a high risk to the lender, you may be required to carry PMI even if you have a 70%, 60%, or even 50% loan to value ratio.

You may be considered high-risk if you ve sold multiple homes recently, have been foreclosed upon, or if you have an unsteady or undocumented income. However, this should be clearly laid out in your loan documents, and if you aren t sure how it works, get a clear answer from your loan officer before signing.

How to Avoid Paying Private Mortgage Insurance

The best way to avoid paying PMI is to not have it on the loan to begin with! If you are purchasing a new home, but won t have a significant down payment, ask your loan officer for suggestions on avoiding PMI.

In the past, a popular option was the 80-10-10 or piggyback mortgage, which used a combination of a second mortgage or home equity loan and your down payment to reduce the loan to value ratio of the primary mortgage. This may still be available through some lenders today.

But if you are already in a mortgage that has PMI, you have two options to remove it:

1. Meet the Loan to Value Ratio

If your loan is near the 80% threshold or whatever threshold your lender stipulated in the initial mortgage paperwork, PMI will be automatically removed by the lender. In practice, most lenders wait until 78%, but if you call and ask, they will remove it sooner.

Since your lender will calculate LTV off the original purchase price, you ll need to keep track of your home s current market value. In other words, if your home has increased in value, you can obtain a professional appraisal and present this to the lender as proof that the value has increased.

While professional appraisals usually cost a few hundred dollars, this can be money well spent if it gets you out of paying PMI several months or years earlier than you otherwise would have.

2. Refinance the Mortgage

Before you refinance a mortgage, weigh the expense against the monthly savings. Also make sure you re comparing apples to apples. In other words, if you have 25 years left on your current loan, request lender quotes for a 25-year mortgage on your current loan balance amount and see how the numbers add up.

If your current loan requires PMI and a new one would not, and if you also qualify for a lower interest rate, a refinance will probably make sense. For example, let s say your current loan requires a loan to value ratio of 70% before you can stop paying PMI and your current loan to value ratio is 75%.

If your credit has improved since you applied for the original mortgage, you may be able to refinance into a new mortgage where the threshold for PMI is 80%. This means you wouldn t have to pay PMI with the new mortgage.

But to determine if this refinance actually saves you money, look at how long it takes to recoup your closing costs via your monthly savings, and make sure you ll be in the house that long. Again, and this can t be overstated, make sure you re comparing apples to apples when reviewing lender quotes: the new loan term and balance need to be the same as what s on your current mortgage.

Final Word

Paying private mortgage insurance is often a necessary cost if you want to purchase a home without a significant down payment. However, you need to understand the terms of your current mortgage contract and calculate your loan to value ratio to avoid paying it longer than absolutely necessary.

Moreover, knowing when and how to remove PMI will lower your monthly mortgage bill. Follow the tips above and the next time you apply for a mortgage, make sure you understand the PMI rules and ask for clarification before signing.

Are you paying private mortgage insurance? What are some of the steps you re taking to remove it from your mortgage loan?


How to Calculate Mortgage Insurance (PMI): 9 Steps (with Pictures), pmi mortgage insurance.#Pmi #mortgage #insurance


How to Calculate Mortgage Insurance (PMI)

Private mortgage insurance (PMI) is insurance that protects a lender in the event that a borrower defaults on a conventional home loan. Mortgage insurance is usually required when the down payment on a home is less than 20 percent of the loan amount. Monthly mortgage insurance payments are usually added into the buyer’s monthly payments.

Steps Edit

Method One of Two:

Calculating Mortgage Insurance Edit

Pmi mortgage insurance

Pmi mortgage insurance

Pmi mortgage insurance

Pmi mortgage insurance

Method Two of Two:

Navigating Other Factors Edit

Pmi mortgage insurance

Pmi mortgage insurance

Pmi mortgage insurance

Pmi mortgage insurance


Deducting (PMI) Private Mortgage Insurance in 2016, 2017, pmi mortgage insurance.#Pmi #mortgage #insurance


Deducting (PMI) Private Mortgage Insurance

Homeowners are usually well informed about the home-related tax deductions that they can make at filing time. However, when purchasing a home, other costs can quickly accumulate. For buyers who can t come up with a 20% down payment on the purchase price, they will have the added cost of private mortgage insurance (PMI).

The PMI is a policy that is taken out by the homebuyer to protect the lender against possible default on the mortgage loan.

Table of Contents

PMI is Now Tax DeductiblePmi mortgage insurance

This income tax deduction was developed as an element of the Tax Relief and Health Care Act of 2006 and initially added to private mortgage insurance (PMI) plans issued in 2007.

This tax break was extended by lawmakers because of the slow recovery of the housing market. It has been extended by Congress for premiums paid up to 2016.

The PMI deduction can be taken by policies issued by the Federal Housing Administration , Department of Agriculture s Rural Housing Service, Department of Veterans Affairs and even private insurers.

Counted as Interest

Since some property tax payments and mortgage interest exceed the regular deductions that can be claimed, a number of homeowners have to itemize their deductions.

You can find the PMI deduction in the Schedule A under the section Interest You Paid , which is on line 13.

How much PMI can you claim? The amount is shown in box 4 of Form 1098 what the lender sent in the alternate year-end mortgage details statement.

Time, Occupancy Restrictions

You should make sure you meet the requirements before you claim the PMI deduction.

Take note of when you sent in payment for the mortgage insurance. If you paid a PMI on your mortgage on or after January 1st 2007, the deduction is eligible. Prior to that date PMI deductions are not eligible.

Any new mortgages up to and including 2016 will qualify for the PMI deduction.

You will also qualify to get the PMI deduction if you refinanced your home after January 1st 2007. You should be careful how the refinance is structured though. The deduction applies to refinances up to the initial mortgage loan amount, not to any additional money you might get from the new refinanced mortgage.

Second home loans also qualify for the deduction of PMI payments. Similar to your primary home, the second home mortgage must have been issued after January 1st 2007 for the deductible to qualify.

The second property has to be for personal use, not rented. You will not be able to claim the PMI if the second property is rented. If your second home is rented you might be able to claim tax breaks as a rental property.

Income Phaseouts

To conclude, even though there isn t a statutory restriction on the total amount of PMI payments you are able to deduct, the amount could be lowered depending on your earnings.

The deduction will start being reduced once the homeowner s adjusted gross income (AGI), exceeds $100,000. This earnings restriction is valid if you are single, the household head or married and submitting together. The phaseout will start at $50,000 AGI for married couples filing taxes independently.

The PMI deduction is lowered by 10 % for every $1,000 a filer s earnings are over the AGI restriction. The deduction goes away entirely for the majority of property owners whose AGI is $109,000 or for married couples filing taxes separately $54,500.

The Schedule A directions consist of a work sheet, as does the majority of income tax preparation software programs, that property owners could utilize to figure out their lowered PMI deduction total.

Use TurboTax and Forget the Hassle

When you use TurboTax Online to prepare and file your taxes , you don’t need to know anything about PMI and other homeowner tax deductions. We’ll just ask you simple questions, fill in all the right forms, and do all the calculations for you.


Deducting (PMI) Private Mortgage Insurance in 2016, 2017, pmi mortgage insurance.#Pmi #mortgage #insurance


Deducting (PMI) Private Mortgage Insurance

Homeowners are usually well informed about the home-related tax deductions that they can make at filing time. However, when purchasing a home, other costs can quickly accumulate. For buyers who can t come up with a 20% down payment on the purchase price, they will have the added cost of private mortgage insurance (PMI).

The PMI is a policy that is taken out by the homebuyer to protect the lender against possible default on the mortgage loan.

Table of Contents

PMI is Now Tax DeductiblePmi mortgage insurance

This income tax deduction was developed as an element of the Tax Relief and Health Care Act of 2006 and initially added to private mortgage insurance (PMI) plans issued in 2007.

This tax break was extended by lawmakers because of the slow recovery of the housing market. It has been extended by Congress for premiums paid up to 2016.

The PMI deduction can be taken by policies issued by the Federal Housing Administration , Department of Agriculture s Rural Housing Service, Department of Veterans Affairs and even private insurers.

Counted as Interest

Since some property tax payments and mortgage interest exceed the regular deductions that can be claimed, a number of homeowners have to itemize their deductions.

You can find the PMI deduction in the Schedule A under the section Interest You Paid , which is on line 13.

How much PMI can you claim? The amount is shown in box 4 of Form 1098 what the lender sent in the alternate year-end mortgage details statement.

Time, Occupancy Restrictions

You should make sure you meet the requirements before you claim the PMI deduction.

Take note of when you sent in payment for the mortgage insurance. If you paid a PMI on your mortgage on or after January 1st 2007, the deduction is eligible. Prior to that date PMI deductions are not eligible.

Any new mortgages up to and including 2016 will qualify for the PMI deduction.

You will also qualify to get the PMI deduction if you refinanced your home after January 1st 2007. You should be careful how the refinance is structured though. The deduction applies to refinances up to the initial mortgage loan amount, not to any additional money you might get from the new refinanced mortgage.

Second home loans also qualify for the deduction of PMI payments. Similar to your primary home, the second home mortgage must have been issued after January 1st 2007 for the deductible to qualify.

The second property has to be for personal use, not rented. You will not be able to claim the PMI if the second property is rented. If your second home is rented you might be able to claim tax breaks as a rental property.

Income Phaseouts

To conclude, even though there isn t a statutory restriction on the total amount of PMI payments you are able to deduct, the amount could be lowered depending on your earnings.

The deduction will start being reduced once the homeowner s adjusted gross income (AGI), exceeds $100,000. This earnings restriction is valid if you are single, the household head or married and submitting together. The phaseout will start at $50,000 AGI for married couples filing taxes independently.

The PMI deduction is lowered by 10 % for every $1,000 a filer s earnings are over the AGI restriction. The deduction goes away entirely for the majority of property owners whose AGI is $109,000 or for married couples filing taxes separately $54,500.

The Schedule A directions consist of a work sheet, as does the majority of income tax preparation software programs, that property owners could utilize to figure out their lowered PMI deduction total.

Use TurboTax and Forget the Hassle

When you use TurboTax Online to prepare and file your taxes , you don’t need to know anything about PMI and other homeowner tax deductions. We’ll just ask you simple questions, fill in all the right forms, and do all the calculations for you.


5 Ways to Get a Loan Without Private Mortgage Insurance (PMI), pmi mortgage insurance.#Pmi #mortgage


How to Get a Loan Without Private Mortgage Insurance (PMI)

For many individuals and families who are looking at purchasing a home, or any other real estate, private mortgage insurance (PMI) can be a major cost factor. PMI is a requirement that comes into play if the buyer’s initial down payment is less than 20% of the purchase price. PMI is designed to guarantee the bank’s interest in the property in case the buyer is unable to keep up with the mortgage payments. Many banks advertise loans that only require low down payments, but the cost of PMI may be excessive. It is important to understand that there are several ways to avoid PMI.

Steps Edit

Method One of Five:

Making a Large Enough Down Payment Edit

Pmi mortgage insurance

Pmi mortgage insurance

Pmi mortgage insurance

Pmi mortgage insurance

Method Two of Five:

Using a Piggyback Loan Edit

Pmi mortgage insurance

Pmi mortgage insurance

Pmi mortgage insurance


PMI – What is Private Mortgage Insurance? #latest #mortgage #rates


#home mortgage insurance

#

Private Mortgage Insurance – What is PMI?

Private Mortgage Insurance – What is PMI?

What is PMI?

PMI, also known as private mortgage insurance, is a type of mortgage insurance from private insurance companies used with conventional loans. Similar to other kinds of mortgage insurance policies, PMI protects the lender if you stop making payments on your home loan. PMI can be arranged by the lender and provided by private insurance companies.

If you are required to pay private mortgage insurance, it typically makes up a portion of your monthly mortgage payment, in addition to your principal, interest, property tax, and homeowners insurance. Similar to interest, property tax, and homeowners insurance, payment of your PMI does not build equity in your home.

8 FAQs about PMI

Mortgage lenders make many borrowers who don t have 20% to put down on a home purchase private mortgage insurance (PMI) to protect the lender if the borrower is unable to pay the mortgage. In other words, PMI guarantees your lender will get paid if you are unable to pay your mortgage payments and you default on your loan. For the borrower, it has a benefit, too: Getting private mortgage insurance allows you to purchase a home before you have the full 20 percent of the home s value saved up for a down payment.

Here s a primer on what you need to know about private mortgage insurance:

1. What are the different types of PMI?

In general, there are two types of mortgage insurance: mortgage insurance bought from the government, designed for those with FHA loans (this is called mortgage insurance premiums or MIP) or private mortgage insurance for conventional loans which is bought from the private sector (this is called private mortgage insurance or PMI). MIP for FHA and VA loans is run differently and managed internally than private mortgage insurance, and they have their own set of rules.

Basically, the type of mortgage insurance required will depend on the type of mortgage loan you get.

2. Who is required to have PMI?

Typically on a conventional loan, if your down payment is less than 20 percent of the value of the home, lenders will require you to carry private mortgage insurance. Usually, you pay those mortgage insurance premiums until you have enough equity in your home to have a loan-to-value ratio (LTV) this is simply the amount of money you borrowed divided by the value of the property you bought of 80 percent.

For example, let s say you bought a home with a value of $100,000 and put a down payment of 10%, or $10,000, and got a $90,000 loan to pay the rest. Your LTV in this case would be $90,000 divided by $100,000, or 90 percent. The longer you pay down your mortgage, the lower your loan-to-value (LTV) will become. On government loans, mortgage insurance is normally required regardless of the LTV.

Need to talk to a lender? Find one on Zillow

3. How much does mortgage insurance cost?

Conventional mortgage insurance rates vary usually, the lower your down payment and/or the lower your credit score, the higher the premiums. The rate you receive for your private mortgage insurance will depend on your credit score, the amount of money you have for your down payment, and insurer. But typically the premiums for private mortgage insurance can range from $30-70 per month for every $100,000 borrowed. So, if you bought a home with a value of $300,000, you might pay about $150 per month for private mortgage insurance.

On FHA loans. there is an up-front MIP (mortgage insurance premium) and annual premium which is collected monthly.

4. When do I pay PMI premiums?

When you are required to pay your private mortgage insurance premium depends on your specific loan policy. But typically, paying your mortgage insurance premiums monthly happens right along with your mortgage payment for your current loan (you can just send one payment to the lender). Lenders may also have a policy that allows you to pay your PMI on a lump sum basis either in cash at closing or finance the premium in your loan amount.

5. Why do I need a PMI policy?

Private mortgage insurance minimizes the risk for lenders to offer loans to borrowers who don t have a 20% down payment and therefore have less equity in their homes once they are purchased. This equity would help pay the loan balance in the event you default and go into foreclosure.

Your lender requires you to have private mortgage insurance so that if you can no longer make payments on your home, the lender will still get paid (through the private insurance policy). PMI basically safeguards the lender in the event of borrower default. It does not protect you, the borrower, if you fall behind on your mortgage payment. If you fall behind on your payments, your credit score could suffer or you could lose your home through foreclosure.

6. How long do I need to have mortgage insurance?

You are typically required to pay a private mortgage insurance premium on a conventional loan for as many months or years it takes to build enough equity in your home to equal 20 percent of your home s value and have a loan-to-value ratio of 80 percent. For many homeowners with FHA loans, a mortgage insurance premium (MIP) is required for the life of the loan policy, which is up to 30 years. Again, MIP for an FHA loan is different than PMI on a conventional loan. Contact your lender if you have questions about the mortgage insurance premium on your FHA loan.

7. Can I avoid paying for mortgage insurance?

Typically, if you put down 20 percent or more when you buy a home, you can typically avoid paying for private mortgage insurance on a conventional loan (not an FHA loan). Otherwise, there are a few loan options that do not require mortgage insurance:

  • In 2016, Bank of America launched a partnership with Self-Help Ventures Fund and Freddie Mac for a new mortgage product called the Affordable Loan Solution mortgage. It s a conforming loan for low- and moderate-income home buyers that allows a down payment of 3% and does not require mortgage insurance.
  • Qualified veterans can apply for a VA loan that allows up to 100 percent financing (that s a $0 down payment) and does not require mortgage insurance. They may only require an upfront funding fee that certain veterans may be exempt from.
  • Some credit unions can waive private mortgage insurance on some loans for strong applicants.
  • Some lenders offer non-conforming and portfolio options that accept down payments as little as 10-15% and do not require PMI.
  • Physician loans typically do not require PMI if the down payment is less than 20%.

Another option to avoid paying PMI, referred to as piggybacking, is taking out a smaller loan for enough money to cover the 20% down payment so that you can avoid paying private mortgage insurance. The downside here is that the smaller loan will typically have a higher interest rate than the interest rate on the mortgage loan. But you can typically deduct the interest on our federal tax return. You will also need to consider whether you can afford to pay a second loan for a set number of years in addition to your mortgage payment. Contact your tax adviser or financial planner for more info.

Check today’s mortgage rates on Zillow

If you are paying PMI on a conventional loan, you can request to cancel it (see below) once you ve built up enough equity in your home. To stop paying your mortgage insurance policy on an FHA loan, you can refinance to a conventional loan once you have enough equity in your home. You ll also want to make sure your credit score is high enough to qualify, and that interest rates make financial sense for you. Contact your lender if you have questions about the mortgage insurance on your FHA loan.

8. When does mortgage insurance “fall off” the loan?

Once the borrower has built up a certain amount of equity in the house, typically 20% equity, private mortgage insurance usually may be canceled which will reduce your mortgage payment and allow you pay less money every month. The lender usually won t automatically cancel PMI until you ve reached 22 percent equity based on the original appraised value of the home, or unless you contact them to request cancellation at 20 percent of the current market value. So if you own a home with a value of $100,000 and have paid down $20,000 in principal, you can request to cancel your PMI. Be sure to contact your lender once you ve hit 20 percent equity.


What is Mortgage Insurance, PMI, MI, First Mortgage, MA #best #mortgage #rate


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What is Mortgage Insurance?

Learn about private mortgage insurance, PMI or MI.

Most home buyers need a mortgage loan to realize homeownership; however, to secure a mortgage loan lenders typically require borrower’s to make a minimum 20 percent down payment. This is one of the largest hurdles for home buyers, particularly first-time home buyers.

Many home buyers simply cannot afford a 20 percent down payment.

In order to resolve this issue, most lenders will allow a borrower to make a down payment of less than 20 percent, as long as the borrower purchases private mortgage insurance (PMI), also known as lender’s mortgage insurance (LMI) or, simply, mortgage insurance (MI). Many borrowers are unaware of PMI requirements and costs.

When a borrower is unable to make a 20 percent down payment, he is considered more likely to default on a mortgage loan. This, of course, puts his or her lender at a higher risk of losing money. This is where mortgage insurance enters the loan process. Mortgage insurance protects the lender in the case of borrower default. If a borrower defaults and his or her lender is unable to recover its costs after the foreclosure and sale of the property, the mortgage insurer provides money, payable to the lender only, to recoup losses.

Standard mortgage insurance does not provide any protection for the borrower. Whether or not a lender recovers its losses through collection on a mortgage insurance policy, the borrower is held fully responsible for his default in Massachusetts. Many borrowers do not understand this, because they confuse mortgage insurance with mortgage protection insurance. These are completely different types of insurance. Mortgage protection insurance does protect the borrower in the case of job loss, disability and/or death depending on the policy, but mortgage insurance, commonly referred to as PMI, MI and LMI, does not.

Although mortgage insurance does not protect borrowers, it still benefits them. Since PMI allows home buyers to make a down payment of less than 20 percent, they can realize homeownership sooner with less upfront costs. Since, however, it is the borrower’s higher risk of default that triggers the need for mortgage insurance, it is typically the borrower who pays the PMI premium.

Mortgage insurance rates vary based on the mortgage amount, loan terms, down payment size, borrower credit score, and other factors. Typical PMI rates are $40-50 monthly per $100,000 borrowed. These premiums may be paid upfront, incorporated into the loan, or part may be paid upfront with the remainder being rolled into mortgage payments. Some mortgage insurance providers, namely those insuring state and federally-backed loans, do offer discounts to borrowers with more modest incomes, but requirements vary.

Fortunately mortgage insurance does not last the life of the loan. It is only required until the loan’s principal reaches 80 percent, which is what the principle would have been originally had there been a 20 percent down payment. This can occur due to the loan being paid down, the value of the home increasing, or both.

Thanks to the US Homeowners Protection Act of 1998, lenders are required to cancel borrower-paid mortgage insurance when the loan is scheduled to reach 78 percent of the original appraised value or sales price, whichever is less. This means a borrower typically needs 22 percent equity in his home in order to have his PMI automatically cancelled. In addition the act gives borrowers the right to request that their lender cancel the PMI when they reach 20 percent equity in their mortgage. Liens and defaults, however, may require further PMI despite these thresholds being reached. Still, in order for a mortgage insurance policy to be officially cancelled, it is the servicer of the mortgage loan who must submit a cancellation request to the mortgage insurer. Before doing this most servicers will conduct a new property appraisal to confirm the borrower has reached 20 percent equity.

Those who seek to avoid mortgage insurance have two main choices: come up with a 20 percent down payment or take out a second mortgage, also known as a piggy-back loan or an 80-10-10 mortgage. This loan bridges the gap between the borrower’s down payment and the requisite 20 percent. These loans are attractive because they allow money to go toward the home’s equity rather than PMI premiums, and they are partially tax deductible. Second mortgages can be more costly than PMI premiums because they tend to have higher interest rates and are often subject to payment increases. Borrowers typically choose second mortgage or piggy-back loan in order to reduce their overall monthly housing payments.

Since mortgage insurance became tax-deductable in 2007, PMI is usually the least expensive option for low-down payment borrowers. It should be noted that Congress extends the PMI tax break on a yearly basis, thus future deductions are not guaranteed (consult a tax professional). Under the current deduction terms, those making under $100,000 per year have an unlimited deduction amount for PMI. Borrowers earning more than $100,000 per year must reduce their deduction by 10 percent for every $1,000 they make over the $100,000 mark. As a result those making over $109,000, gross adjusted income, are not allowed a PMI tax deduction.

Home buyers who plan to secure a mortgage with a down payment of less than 20 percent, should keep PMI and its costs in mind. When searching for a mortgage lender and negotiating home price, it is important to consult a mortgage professionals who is familiar with the lending process and a buyer agent who is experienced in the home-buying process.

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PMI – What is Private Mortgage Insurance? #home #refinance #loans


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Private Mortgage Insurance – What is PMI?

Private Mortgage Insurance – What is PMI?

What is PMI?

PMI, also known as private mortgage insurance, is a type of mortgage insurance from private insurance companies used with conventional loans. Similar to other kinds of mortgage insurance policies, PMI protects the lender if you stop making payments on your home loan. PMI can be arranged by the lender and provided by private insurance companies.

If you are required to pay private mortgage insurance, it typically makes up a portion of your monthly mortgage payment, in addition to your principal, interest, property tax, and homeowners insurance. Similar to interest, property tax, and homeowners insurance, payment of your PMI does not build equity in your home.

8 FAQs about PMI

Mortgage lenders make many borrowers who don t have 20% to put down on a home purchase private mortgage insurance (PMI) to protect the lender if the borrower is unable to pay the mortgage. In other words, PMI guarantees your lender will get paid if you are unable to pay your mortgage payments and you default on your loan. For the borrower, it has a benefit, too: Getting private mortgage insurance allows you to purchase a home before you have the full 20 percent of the home s value saved up for a down payment.

Here s a primer on what you need to know about private mortgage insurance:

1. What are the different types of PMI?

In general, there are two types of mortgage insurance: mortgage insurance bought from the government, designed for those with FHA loans (this is called mortgage insurance premiums or MIP) or private mortgage insurance for conventional loans which is bought from the private sector (this is called private mortgage insurance or PMI). MIP for FHA and VA loans is run differently and managed internally than private mortgage insurance, and they have their own set of rules.

Basically, the type of mortgage insurance required will depend on the type of mortgage loan you get.

2. Who is required to have PMI?

Typically on a conventional loan, if your down payment is less than 20 percent of the value of the home, lenders will require you to carry private mortgage insurance. Usually, you pay those mortgage insurance premiums until you have enough equity in your home to have a loan-to-value ratio (LTV) this is simply the amount of money you borrowed divided by the value of the property you bought of 80 percent.

For example, let s say you bought a home with a value of $100,000 and put a down payment of 10%, or $10,000, and got a $90,000 loan to pay the rest. Your LTV in this case would be $90,000 divided by $100,000, or 90 percent. The longer you pay down your mortgage, the lower your loan-to-value (LTV) will become. On government loans, mortgage insurance is normally required regardless of the LTV.

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3. How much does mortgage insurance cost?

Conventional mortgage insurance rates vary usually, the lower your down payment and/or the lower your credit score, the higher the premiums. The rate you receive for your private mortgage insurance will depend on your credit score, the amount of money you have for your down payment, and insurer. But typically the premiums for private mortgage insurance can range from $30-70 per month for every $100,000 borrowed. So, if you bought a home with a value of $300,000, you might pay about $150 per month for private mortgage insurance.

On FHA loans. there is an up-front MIP (mortgage insurance premium) and annual premium which is collected monthly.

4. When do I pay PMI premiums?

When you are required to pay your private mortgage insurance premium depends on your specific loan policy. But typically, paying your mortgage insurance premiums monthly happens right along with your mortgage payment for your current loan (you can just send one payment to the lender). Lenders may also have a policy that allows you to pay your PMI on a lump sum basis either in cash at closing or finance the premium in your loan amount.

5. Why do I need a PMI policy?

Private mortgage insurance minimizes the risk for lenders to offer loans to borrowers who don t have a 20% down payment and therefore have less equity in their homes once they are purchased. This equity would help pay the loan balance in the event you default and go into foreclosure.

Your lender requires you to have private mortgage insurance so that if you can no longer make payments on your home, the lender will still get paid (through the private insurance policy). PMI basically safeguards the lender in the event of borrower default. It does not protect you, the borrower, if you fall behind on your mortgage payment. If you fall behind on your payments, your credit score could suffer or you could lose your home through foreclosure.

6. How long do I need to have mortgage insurance?

You are typically required to pay a private mortgage insurance premium on a conventional loan for as many months or years it takes to build enough equity in your home to equal 20 percent of your home s value and have a loan-to-value ratio of 80 percent. For many homeowners with FHA loans, a mortgage insurance premium (MIP) is required for the life of the loan policy, which is up to 30 years. Again, MIP for an FHA loan is different than PMI on a conventional loan. Contact your lender if you have questions about the mortgage insurance premium on your FHA loan.

7. Can I avoid paying for mortgage insurance?

Typically, if you put down 20 percent or more when you buy a home, you can typically avoid paying for private mortgage insurance on a conventional loan (not an FHA loan). Otherwise, there are a few loan options that do not require mortgage insurance:

  • In 2016, Bank of America launched a partnership with Self-Help Ventures Fund and Freddie Mac for a new mortgage product called the Affordable Loan Solution mortgage. It s a conforming loan for low- and moderate-income home buyers that allows a down payment of 3% and does not require mortgage insurance.
  • Qualified veterans can apply for a VA loan that allows up to 100 percent financing (that s a $0 down payment) and does not require mortgage insurance. They may only require an upfront funding fee that certain veterans may be exempt from.
  • Some credit unions can waive private mortgage insurance on some loans for strong applicants.
  • Some lenders offer non-conforming and portfolio options that accept down payments as little as 10-15% and do not require PMI.
  • Physician loans typically do not require PMI if the down payment is less than 20%.

Another option to avoid paying PMI, referred to as piggybacking, is taking out a smaller loan for enough money to cover the 20% down payment so that you can avoid paying private mortgage insurance. The downside here is that the smaller loan will typically have a higher interest rate than the interest rate on the mortgage loan. But you can typically deduct the interest on our federal tax return. You will also need to consider whether you can afford to pay a second loan for a set number of years in addition to your mortgage payment. Contact your tax adviser or financial planner for more info.

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If you are paying PMI on a conventional loan, you can request to cancel it (see below) once you ve built up enough equity in your home. To stop paying your mortgage insurance policy on an FHA loan, you can refinance to a conventional loan once you have enough equity in your home. You ll also want to make sure your credit score is high enough to qualify, and that interest rates make financial sense for you. Contact your lender if you have questions about the mortgage insurance on your FHA loan.

8. When does mortgage insurance “fall off” the loan?

Once the borrower has built up a certain amount of equity in the house, typically 20% equity, private mortgage insurance usually may be canceled which will reduce your mortgage payment and allow you pay less money every month. The lender usually won t automatically cancel PMI until you ve reached 22 percent equity based on the original appraised value of the home, or unless you contact them to request cancellation at 20 percent of the current market value. So if you own a home with a value of $100,000 and have paid down $20,000 in principal, you can request to cancel your PMI. Be sure to contact your lender once you ve hit 20 percent equity.