Private Mortgage Insurance (PMI) is a financial instrument that can be used by potential homebuyers to get into a home that they, otherwise, would not be able to afford. Basically, PMI acts as a safety net for lenders who want to process a loan for a borrower who does not have the 20 percent down payment that is usually required to qualify for a mortgage. This insurance is typically used by first time home buyers and can get a qualified borrower into a home with as little as 3-5 percent down. Continue reading
Private Mortgage Insurance (PMI) is a financial instrument that can be used by potential homebuyers to get into a home that they would otherwise not be able to afford. Basically, PMI acts as a safety net for lenders who want to process a loan for a borrower who does not have the 20 percent down payment that is usually required to qualify for a mortgage. This insurance, which can get a qualified borrower into a home with as little as 3-5 percent down, is typically used by first time home buyers.
In order to understand the details of Private Mortgage Insurance, it is important to understand the motivation of lenders. Lenders are in business to make money and borrowers who have a down payment of less than 20 percent are most likely to default. If a lender approves too many loans to unqualified borrowers, they open themselves up to risk if those loans begin to default.
Normally the lender that you are dealing with will provide you with information on a PMI policy and will secure it for you. The initial cost of the PMI can either be added to your closing costs or tacked onto your monthly mortgage payments. This mortgage insurance can range in price from � to 1 percent of the loan amount each year. Borrowers will need to continue to make mortgage insurance payments until they have reached the 20 percent equity threshold.
The Homeowners Protection Act passed in 1998 contains a number of provisions to protect the interests of PMI borrowers. The main provision of the act calls for the automatic termination of the policy when the borrower reaches 22 percent equity in their home (based on the original property value). There are also provisions that require the lender to provide the borrower with information on termination and cancellation of the policy.
If you would like more information on a Private Mortgage Insurance policy and how it can help you get into your dream house today, let me know and I can recommend a qualified lender.
Call me for more information or for a qualified lender recommendation – (619) 890-3648! – John A Silva
What’s in a mortgage payment? This infographic breaks down a mortgage payment into P.I.T.I. – principal, interest, taxes, insurance. When you’re buying a house, keep informed about how much that home will cost you, based on how much you put down and whether or not you will need to pay mortgage insurance.
This mortgage payment-related infographic is from mlsmaps.com.
Five reasons near-record low rates are out of reach for some
CHICAGO (MarketWatch) — Mortgage rates are near historical lows, but the rates lenders are quoting you aren’t as eye-popping as those you see in the news.
When your vacation home becomes everybody’s home
Buying a retirement or second home might sound like a great idea, until friends and family begin using your place as a crash pad. Here are tips on how to handle unexpected guests without damaging relationships.
Why is that?
First, remember that mortgage rates are moving constantly, and rate surveys are capturing rates from past points in time. For example, Freddie Mac’s weekly survey collects rate data over the course of a week. Bankrate.com’s survey collects rate data every Wednesday…By the time results are released, they’re already outdated.
There are other reasons your rate might be higher. Below are five of them.
Average rates in Freddie Mac’s survey include average discount points paid for the mortgage. But not everyone is willing to pay points.
For the week ending Oct. 27, rates on the 30-year fixed-rate mortgage averaged 4.1%, but that rate required an average 0.8 point to get it. A point is 1% of the mortgage amount, charged as prepaid interest.
Unless you’re going to live in your home for a very long time, paying points often doesn’t make sense…
2. Your borrower characteristics mean price adjustments
A credit score on the low side will prevent you from getting the lowest rates. Low levels of home equity will also mean a pricier mortgage rate.
That’s thanks to loan level price adjustments from Fannie Mae and Freddie Mac that have been making it tougher for borrowers to get the best rates for the past few years…
3. Your property type means higher rates
For condo-unit mortgages, you need a 75% loan-to-value ratio, or a 25% equity position, to get the best rates, said Christopher Randall, vice president, secondary marketing, at the Real Estate Mortgage Network, a mortgage lender.
And if your mortgage is for a vacation home or investment property, you can also expect to pay a higher rate, McBride said…
4. You don’t have recent proof of income
For the self-employed — who don’t have pay stubs as proof of recent income — the most recent tax returns are what a lender will look at before giving you a mortgage. If business has improved after your past tax return, that’s not going to be of any help as you try and get a mortgage today…
5. Your lender isn’t hurting for business
There can be a big disparity in what rates are offered from lender to lender, Findlay said. And it may have to do with how many mortgages they’ve been originating lately.
“Some that are lacking volume will tend to be more competitive,” he said. “Those that have enough volume may say we’re going to keep rates high.”
But the rate isn’t everything, Randall said. When shopping for mortgages, borrowers need to focus on comparing their monthly payments. “People are drawn to the interest rate… but you have to look deeper. Review the documentation,” Randall said.
For instance, it’s possible for someone to get an offer of a very low rate on a mortgage backed by the Federal Housing Administration — that loan also may come with a higher insurance premium, Randall said. That person may be better off taking a conventional mortgage with lower priced private mortgage insurance, even if their interest rate is a little higher, he said…