Private mortgage insurance has been a source of complaint for many first-time homebuyers. This article talks about private mortgage insurance, which is also called "PMI."
Insurance for private mortgages
Every business in the United States has some kind of insurance to cover losses, unless the owners are crazy. The different lending companies that give out home loans, equity lines, and refinances are the same. Private mortgage insurance is the type of insurance they have.
Private mortgage insurance protects the bank from losing money if you don't pay back your loan and the bank has to foreclose on your home. Basically, the lender will be paid for any difference between the cost of selling the home and the amount of the loan. This is especially important for a lender when home prices drop from high levels. During a pullback like this, it's not unusual for the total amount owed on a mortgage to be more than the value of the home. It's clear that this makes lenders nervous.
PMI - Premiums
Most people who own their own home can understand why they need private mortgage insurance. When they find out who has to pay for the insurance, though, they start to complain. The homeowner is responsible. As a homeowner, you pay for insurance that protects the lender in case you don't pay back the loan. Even though this might not seem fair, remember that the lender is giving you a pretty big sum. There is a way to avoid having to pay mortgage insurance if you still don't like it.
Twenty Percent Down
If you get a home loan, the 20 percent number will be right in front of you. Why? In the world of home loans and mortgages, 20% is a magic number. If you make a 20% down payment, you don't have to get private mortgage insurance or pay for it. With PMI premiums costing $1,000 or more a year, it makes sense to put down at least 20% if you can.
What if you don't have enough money to put down 20% of the home's value? Well, you have to pay PMI, but it won't last forever. Once your share of the home's value reaches 20%, you can stop paying the PMI. Keep an eye on your equity because lenders aren't required to tell you when the magic 20 percent number is reached. They almost never seem to remember, which is strange!
PMI
Private mortgage insurance is expensive, but if you put down a big down payment, you can avoid having to pay for it. If you can't come up with that big sum of money, try to think about the nice home and investment that loan let you get.
