Basics of Private Mortgage Insurance (PMI)
General conventional loans require 20% of the selling price as a down payment. This is often the largest hurdle for many potential home buyers. In order to make buying a home more affordable, lenders devised a solution to allow for smaller down payments and still minimize their own risk private mortgage insurance.
Borrowers with less than 20% for a down payment may be required to apply for private mortgage insurance. The PMI company then insures the lender, generally for the top 20% of the mortgage, in case of borrower default. The amount that the borrower is required to pay for PMI depends on the type of loan, the loan-to-value ratio, and the insurer. However, it is the lender, not the borrower, that shops for the PMI company and program, so there are some important questions to ask lenders about PMI.
How many companys PMI programs will be considered?
How does the selected policy compare to others in the marketplace in its:
Rates
Insured loan-to-value ratio
Procedure for requesting removal of PMI
The PMI company will consider your application with many of the same guidelines...
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