Private Mortgage Insurance

You don’t want to part with your hard earned money, so you need to know the benefits of taking out private mortgage insurance when you get a mortgage for a new home. Generally, the purchase of a new home means that you have to save up money for several years to have enough for the required down payment, that is usually 20% of the purchase price of the home. A typical single family dwelling now sells for at least $200,000, so that means you would have to have $40,000 saved up. With private mortgage insurance, you don’t have to wait until you have all that money saved because one of the main benefits of having such an insurance policy is to lower the amount of your down payment. This is available only on conventional loan products.

The advantages to having private mortgage insurance for the borrower. When you take out a policy you to pay a lesser percentage amount as a down payment. The minimal down payment is 5% with PMI. This insurance is required if you borrow more than 80% of the total purchase price of a home or if you are over 80% Loan to value (LTV) on a refinance.. For example, on a home that costs $200,000, with 5% down payment you would only have to come up with $10,000 down payment plus cost. This is a difference of $30,000 under regular circumstances of 20% down.

Keep track of your payments on the principal of the mortgage. When you reach the point where the loan-to-value ratio hits 80 percent, notify the lender that it is time to discontinue the PMI premiums. Federal law requires lenders to tell the buyer at closing how many years and months it will take for them to reach that 80 percent level and cancel PMI. Lenders must automatically cancel PMI when the balance hits 78 percent.