Basics Of Private Mortgage Insurance

Basics of Private Mortgage Insurance (PMI)

General conventional loans require 20% of the selling price as
a down payment. This is often the largest hurdle for many
potential home buyers. In order to make buying a home more
affordable, lenders devised a solution to allow for smaller down
payments and still minimize their own risk – private mortgage
insurance.

Borrowers with less than 20% for a down payment may be required
to apply for private mortgage insurance. The PMI company then
insures the lender, generally for the top 20% of the mortgage,
in case of borrower default. The amount that the borrower is
required to pay for PMI depends on the type of loan, the
loan-to-value ratio, and the insurer. However, it is the lender,
not the borrower, that shops for the PMI company and program, so
there are some important questions to ask lenders about PMI.

· How many company's PMI programs will be considered?
· How does the selected policy compare to others in the
marketplace in its:

– Rates
– Insured loan-to-value ratio
– Procedure for requesting removal of PMI

The PMI company will consider your application with many of the
same guidelines as the lender, namely your credit, employment,
and reserves. Additionally, they will consider the property
being purchased and such questions as:

· Does the loan have a "teaser" rate which will increase
payments in the future?
· To what financial degree is the seller contributing?
· How stable is the borrower's employment?
· Is the economy of the area stable?
· How is the neighborhood where the property is located?

Luckily, for conventional loans, PMI is not something that must
paid for the life of the loan. For loans originated after July
29, 1999, once the borrower has reached 22% equity and payments
are current, the federal government requires that the lender
remove the PMI. The borrower can petition the lender to remove
the PMI at any time. This usually will require documentation of
an appraisal and sufficient and timely payments. Be aware of
which appraisers are approved by your lender – lenders can
choose not to accept the appraisal if it was not done according
to the lender's guidelines.

About The Author: Lauren Armstrong is an industry professional
and expert author at http://Smartloanstart.com. Shop for a loan,
compare rates, and get instant approval online with our
recommended lenders and services at
http://www.smartloanstart.com

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