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Private Mortgage Insurance as a Way to Become a Homeowner


  • Buying a home can bring joy and happiness to young couples who just tired to rent. However, if you don’t have enough money for a down payment, that is 20 percent of the home loan, the situation becomes complicated. Moreover, lenders also consider a down payment below 20 percent as a sigh of a high risk. In this case, in order to get a loan, a lender may offer the buyer to pay private mortgage insurance.

    Private Mortgage Insurance

    Private mortgage insurance insures your mortgage against default. This allows the lender to recover their money even if the home is no longer worth enough to pay off the balance. PMI is also useful for you as a borrower. It can allow you to purchase a property without paying the full 20 percent down. So, thanks to PMI you’re able to put less money down and get into the home sooner. However, how much you’ll pay each month and how long depends on your down payment amount and your credit rating.
    So, borrowers who cannot pay at least 20 percent of the mortgage as a down payment must automatically enroll in a PMI program. There are two types of PMI, borrower paid and lender paid.
    When you choose borrower paid PMI, you are responsible to pay extra fee each month. However, you have the right to request cancellation of PMI when you pay down your mortgage to the point that is equals 80 percent of the original price or appraised value of your home at the time the loan was obtained.
    Some lenders might be willing to pay the mortgage insurance premiums for you; however, it will still cost you. In exchange for covering the PMI, the lender charges you a slightly higher interest rate on your mortgage loan. However, since the cost of your mortgage interest is tax-deductible, the higher interest rate equals a larger deduction.

    FHA Loans

    An FHA loan is a mortgage loan that is insured by the Federal Housing Administration (FHA). The federal government insures loans for FHA-approved lenders in order to reduce their risk of loss if a borrower defaults on their mortgage payments. An FHA loan is one of the easiest types of mortgage loans to qualify for because it requires a low down payment and you can have less than perfect loan.

    VA Loans

    VA loans are backed by the U.S. Departments of Veterans Affairs do not come with mortgage insurance, regardless of your down payment amount. These are home loans for the purchase of a primary residence available to consumers who have served or are presently serving in the U.S. military. You are also eligible for a VA Loan if you are a veteran, an active-duty personnel or a National Guard member.

     

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