An often overlooked cost of buying a new home is private mortgage insurance, usually simply called PMI. The basic idea behind PMI is simple. When a home buyer buys a house with less than 20% of the homes value as a down payment, the mortgage lender assumes a larger risk. In most cases, the lender will require that the buyer thats you purchase private mortgage insurance that will pay off your mortgage if you default on it.
Because PMI is an added expense for the consumer, the federal government has a number of regulations regarding PMI. There are specific rules that mortgage lenders must follow if you signed (or will sign) a mortgage after July 29, 1999. Thats when The Homeowners Protection Act of 1998 (HPA) went into effect. In addition, many states have their own laws regarding private mortgage insurance that are designed to protect homeowners and save them money.
Like many other things about buying a new home, the rules surrounding private mortgage insurance can be confusing. Here are some answers to commonly asked questions about PMI to help make it a little clearer.
Who has to pay PMI?
Most lenders require private mortgage insurance from home...
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