Many private lenders require proof that their investment will be protected if the borrower defaults. This is largely accomplished through private mortgage insurance (PMI). PMI may need to be factored in to your ultimate costs if you finance a home. It is not the same thing as homeowners insurance and it protects the lender’s funds only. Regardless of that, you as the borrower must pay for the coverage. It is not always required. Professional Mortgage Solutions is here to explain Private Mortgage Insurance (PMI) to homebuyers in the Rego Park, NY area.
Lender Programs and Mortgage Insurance
Note that Private Mortgage Insurance is only used with private lenders. Government-backed programs like VA loans or FHA loans may come with their own insurance or other requirements. Most of the time, conventional loans will require PMI if the borrower is offering less than 20% down payment. Luckily, as you pay off the loan, you can apply to drop the requirement for PMI. Usually this can be done when the home reaches 20% loan-to-value or more. However, you may have to pay for a home appraisal.
Private Mortgage Insurance Costs
You usually pay an up-front cost for PMI. Ongoing rates can be rolled into your monthly mortgage payment. Usually PMI can range from 0.5% to 1.5% of the original loan value per year. There may be a percent charge for the up-front fee, as well. Factors that influence cost include the loan size, type, and your down payment. If you get a large loan, this can add up quickly. Some see $160 per month or more in payments for loans above $200,000.
Eliminating Private Mortgage Insurance Costs
One of the most common ways to eliminate PMI is to offer a 20% or more down payment on the home. If you cannot save enough, then you can eliminate the requirement once you reach a 20% loan-to-value, depending on the lender. You must read the terms of your agreement and submit the request in accordance to the lender’s requirements. If you want to cancel PMI, strive to make payments on time and remain in good standing. You cannot have other liens on the home and you may have to prove that your house has not declined in value.
Some lenders will waive the PMI requirement even if you offer less than 20% down payment. They may add a higher interest rate to your loan, or even create a second mortgage to carry the cost. Sometimes this will not save you as much as if you had just paid the PMI. It can be complicated to understand, so we welcome you to contact us with questions. The friendly team at Professional Mortgage Solutions in Rego Park, NY is standing by to help!