What Is PMI? Private Mortgage Insurance, Albuquerque Real Estate
You found the right place is you want to understand what is PMI or Private Mortgage Insurance. There are many types of mortgage products on the market at any one time. In Albuquerque there are mortgage products that allow you to purchase a home with as little as $500 down payment. FHA or Federal Housing Administration allows home buyers to purchase a home for 3.5% down payment.
Lenders are concerned about whether or not they will be paid back when they make a mortgage to a home buyer. PMI or Private Mortgage Insurance is a risk managment product that protects lenders against loss if a buyer defaults on their commitment to pay the lender back. PMI is basically an insurance policy that covers the lender if you default on the loan. It is important to understand you as a home buyer are paying for this insurance policy.
PMI is only used on conventional loans, Federal Housing Administration (FHA) has its own type of mortgage insurance and Veterans Administration (VA) does not require mortgage insurance.
Most lenders only require PMI on mortgages with a loan to value (LTV) in excess of 80%. In other words the lender put less than 20% down payment. The lender will use the lesser of the purchase price or the appraised value to determine whether the LTV is greater than 80%. This is important to understand, if you get a great deal and the home appraises way over the purchase price, the lender will use the purchase price.
Some borrowers think PMI is a bad deal for them. However, without PMI, the buyer would need to wait until they have a down payment of 20%. This can be a lot of money and some would be home buyers will be left out of the market.
Home owners will pay PMI monthly as part of their mortgage payment until they meet certain requirements. Most lender will require PMI to be paid for at least one year. This will only apply if you purchased a home at a screaming deal or home prices are rising rapidly. Home owners should notify their lender when they have 20% equity in their home. Lenders are requred at closing to disclose when the home owner how many years and months it will take to for them to pay 20% of the principle.
In a market with rising home prices, you may reach 20% equity in less time than disclosed at closing. Contact us if you think you have 20% equity in your home. We can do a market analysis and let you know what we think your home is worth. If it is determined you may have 20% equity, contact your mortgage company to understand the process to remove the PMI from your mortgage. In most cases, the lenders will require an appraisal to determine the value of your home.
Once your down payment, plus the principle you have paid off, equals 22% of the home’s purchase price, the lender must cancel the PMI as required by the Home Owners Protection Act. This is true even if you home’s value has declined, as long as you are current on your mortgage payments.
PMI costs between .25% and 2% of the loan balance depending on many factors such as your credit score, down payment, term of the loan. The greater the home buyers risk factors, the higher amount they will pay.
Myers & Myers Real Estate
Myers & Myers Real Estate is a full service real estate brokerage located in Albuquerque New Mexico. We help home buyers and home sellers in the Albuquerque metro achieve their real estate goals. Our website has every home for sale in the Southwest Multiple Listing Service.
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