Pmi - Private Mortgage Insurance
By Dan Lewis, Fri Dec 9th
Many a first-time homebuyer has grumbled about paying privatemortgage insurance. This article discusses the particulars ofprivate mortgage insurance, also known as "PMI."
Private Mortgage Insurance
Unless they owners are insane, every business in the UnitedStates carries some form of insurance to protect against losses.The various lending institutions that issue home loans, equitylines and refinances to borrowers are no different. Theinsurance they carry is private mortgage insurance.
Private mortgage insurance protects a lending institution fromlosses if you default on your loan and a home goes intoforeclosure. Essentially, the lending institution is going to becovered for any shortages between the cost of liquidating thehome and the amount of the loan. This is of particularimportance to a lender when the housing market pulls back fromhigh valuations. In such a pull back, it is not uncommon to seethe total mortgage balance exceed the value of the home.Obviously, this makes lenders uncomfortable.
PMI - Premiums
Most homeowners can wrap their minds around the need for privatemortgage insurance. The grumbling starts, however, when theyfind out who has to pay for the insurance. Yep, the homeowner ison the hook. As the homeowner, you are paying for insurance thatwill protect the lender if you default. While this may not seemfair, keep in mind the lender is giving you a rather sizablechunk of money. If you are still grumbling, there is a way toavoid paying mortgage insurance.
20 Percent Down
If you take out a home loan, the 20 percent figure will comefront and center in your mind. Why? 20 percent is a magic figurein the world of home loans and mortgages. If you make a downpayment of 20 percent, you are not required to obtain or pay forprivate mortgage insurance. With PMI premiums running $1,000 ormore a year, it makes sense to pay 20 percent as a down paymentif at all possible.
What if you can't scrape together 20 percent of the home valuefor the down payment? Well, you're stuck paying PMI, but notforever. Once your equity in the home reaches 20 percent of thevaluation, you can cancel the PMI. Keep a close on your equityas lending institutions are under no duty to tell you when themagic 20 percent figure is reached. Oddly, they almost neverseem to remember!
PMI
Private mortgage insurance is expensive, but you can avoid itwith a sizeable deposit. If you can't come up with that chunk ofchange, try to keep in mind the beautiful home and investmentthe loan let you acquire.
About the author:Dan Lewis is a mortgage broker with http://www.gwhomeloans.com -San Diego mortgage brokers providing home loans and refinances.Visit http://gwhomeloans.com/services.html to learn more aboutoptions for San Diego mortgages.
