Janet Cramb & Company/LAER Realty Partners



Posted by Janet Cramb on 1/2/2019

Applying for a mortgage can be a lengthy and difficult process. Lenders want to know that they are going to get a return on their investment.

To ensure that they’ll see that positive return they will take a number of things into consideration, such as your income, credit score, employment history, and financial capital.

First-time homeowners often struggle when it comes to these prerequisites since they have fewer years of numbers for lenders to consider. If you’re one of those people, don’t worry--you can still purchase a home.

First-time homeowner loans, which are guaranteed by the U.S. government, and a number of private loans enable people to borrow money for a home without paying a huge down payment or having a vast credit history.

One downfall of said loans is private mortgage insurance, or “PMI.”

In this article, we’re going to talk about what private mortgage insurance is, how to avoid it, and how to get rid of it. 

What is PMI?

If you make a down payment on a mortgage that is less than 20% of the loan amount, you will most likely have to pay private mortgage insurance.

PMI exists as a way for lenders to help guarantee they won’t lose money off of your loan. If you make a down payment of 20% or more, then lenders are typically satisfied that they won’t lose money from doing business with you.

PMI is not to be confused with home insurance, which protects you against damage and theft. Rather, it is an additional fee you’ll pay to your lender each month that is added to your mortgage payment.

PMI is calculated based on a few considerations. Lenders will take into account your down payment amount, the value of the mortgage, and your credit score.

In terms of costs, PMI typically costs between .5 and 1% of the total mortgage amount each year.

Avoiding PMI

Naturally, it’s best to avoid paying private mortgage insurance altogether. Private mortgage insurance has no future value for you and your family since it doesn’t count towards building equity and doesn’t protect you from any potential financial harm (your lender is the sole beneficiary of PMI).

Saving for a down payment can take time, and sometimes you’ll need to rent or cut costs while you save. However, if you do take on a loan with PMI, you can still cancel it at a later point.

Canceling your private mortgage insurance

The first thing you should know about canceling PMI is that it usually isn’t easy. You’ll need pay off at least 20% of the home, write a letter to your lender, and wait for an appraisal of the home. Once you’ve done this, you still have to wait while your lender considers your request. In all, this process could take months--months that you’re still required to pay PMI.

Once common way to get out of PMI is to refinance. If the value of your home has increased since the time of you taking on the loan, the new lender likely won’t require PMI. However, you’ll want to make sure that refinancing will get you a lower interest rate and cover the costs of refinancing. 




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Posted by Janet Cramb on 8/5/2015

When buying a home and shopping for a mortgage there are lots of new and unknown terms and one of those is often PMI. What is PMI? PMI stands for private mortgage insurance and chances are if you are first-time buyer you will have to pay it. First things first, PMI is for the lender, not for you. Typically, homebuyers who put down less than 20 percent on their homes are required to pay private mortgage insurance. PMI protects the lender in the event that you default on the loan. Mortgage insurance requirements vary by loan type and are not inevitable. Different loan types will have different mortgage insurance requirements. You will want to shop around because some loans have no PMI requirements at all. If your loan has PMI some lenders may offer something called “lender paid mortgage insurance” in exchange for a slightly higher interest rate. Here are some typical loans and the PMI requirements: FHA loans: Require mortgage insurance to be paid up front and monthly if equity in the home is less than 20 percent. VA loans: Do not require mortgage insurance. USDA loans: Do not require mortgage insurance. Conventional loans: Require mortgage insurance if equity is less than 20 percent. If you have to pay mortgage insurance you are not stuck with it forever. Once you reach an equity position of 20 percent or more you will be able to stop making mortgage insurance payments.  When you reach this position notify your lender, who will send you information on what is required for your specific loan program to get rid of mortgage insurance payments.