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Mortgage insurance is also referred to as the private mortgage insurance (PMI) or lenders mortgage insurance (LMI). It is a type of an insurance policy that provides protection to lenders against the event when the borrowers are likely to become default.
Who is eligible for this insurance?
This insurance policy is specially designed for lenders. The premiums of this policy are passed to borrowers in terms of fee that they pay for their monthly mortgage payment. This insurance policy is normally applied to mortgage that allows down payment of less than 20% on the value of the purchased property.
Eligibility criteria for mortgage insurance
In order to qualify for this insurance policy, there are certain conditions that are applicable to a mortgage and it has to meet these conditions. These conditions are defined by the Federal National Mortgage Association (Fannie Mae). Borrowers’ qualifications are being covered by these conditions, apart from that; these conditions cover the type of property that is being borrowed against, and the volume of mortgage.
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Tags: Home & Condo Insurance, house, Insurance, interest rate, loan, mortgage, pmi
There are a few ways to avoid a private mortgage insurance (PMI) when buying a house. One of the best alternatives is to get a piggyback loan. In this method, you can take 80% of the price, put it on mortgage and put the remaining percentage on a second mortgage.
This may mean that the second mortgage would have a higher interest rate, but in the long run, it leads to saving. How? If you pay off your second loan early, it would lower your monthly payments greatly.
The premium for private mortgage insurance is based on the amount the home buyer is borrowing as well as the amount of down payment that the home buyer can afford.
One thing to keep in mind during the course of your loan is the amount of principal you’ve paid. Once you’ve paid off 20% of your home’s assessed value, you can approach your lender and ask them to remove the PMI.
Secondly, one can use The Finance Single Premium option. This became highly popular as a response to the piggyback loan. In this option, you can have your monthly payments lowered as if you obtained a piggyback loan.
Of course you can choose to not take a PMI loan at all. You would have a higher interest rate in that case but you wont have to pay private insurance premium. Naturally what option you choose depends entirely on your financial situation so the best thing to do would be to ask your loan officer or do a bit of research to aid you in the process.
