Private Mortgage Insurance or PMI

Home buyers may have to pay Private Mortgage Insurance or PMI if they pay less than 20% down payment for their home. Mortgage loan is always a risky business. The lenders are always looking for assurance that they will get their money back on time or their investment will be protected. It is not always easy to predict which borrower will default in future. Because of this the lenders want the borrower to pay the private mortgage insurance.

Private mortgage insurance protects the lenders from the loss that may arise due to the failure of borrower. If the chances of losing arises then the insurance company will come forward to cover lose. So the investor does not have the chance of losing his investment. Generally PMI covers the difference between value of the home and remaining balance of the mortgage.

So the question is who requires private mortgage insurance? Basically the lenders require PMI for the loan of more than 80% value of the home. For example if a home is worth $ 1, 00,000 and the loan is of more than 80% then PMI is required. PMI also can be cancelled when the borrower no longer owes more 80% of the home value.

There must be some advantages of PMI. Let’s discuss the advantages of PMI from the point of view of both borrower and lender. If you have mortgage insurance then you can Enjoy:

Buy house with less payment: PMI enables you to buy house with less down payment. This means you can buy house with less than 20% of the principal value of the house. It allows you to buy an expensive house.

Property building: As less money is required at the closing so the borrower can invest money for his/her next property.

Tax benefit: Smaller down payment means you have loan to pay. So you can claim tax benefit.

And from the lender’s point of view, it protects the lender from the loss that may occur due to the default in loan repayment by the borrower.

Facts of PMI

In order to get PMI you need to have clear idea about the facts of PMI. Some time you may have to seek out an insurance agent. On behalf of you these agents check with lenders to find qualified mortgage insurance leads. If you are qualified then you have to fill out a form in the insurance lead provider’s website.

It is not necessary that mortgage loan requires PMI. You have the option of FHA (Federal Housing Administration) loan. It is backed Government’s guarantee. As a borrower you have to pay the loan either at the end of the term or monthly mortgage insurance premium.