Posts Tagged ‘pmi’

Mortgage Questions

Some of the most commonly asked mortgage questions.

When it comes to buying a house you want to ensure you follow all the rules and do your homework. Buying a car may be a big financial decision however, for the average person, signing your name on a mortgage will probably be the biggest financial decision you will ever make. Below are a list of the most common questions you should know the answer to before you sign the mountain of paperwork. I am going to start this series of posts and over the next several months answer each of these mortgage questions.

• Can I afford to buy a home?
• How much money should I spend on a home mortgage?
• What are the differences between mortgage pre-qualification, pre-approval and final loan approval?
• What first-time buyer programs are available?

• What types of mortgages are available and which should I choose?
• Can I use my IRA retirement funds as a down payment on a home?
• Should I pay points on my mortgage?
• I have poor credit are there still options for a mortgage?
• What are front and back ratios?
• Is it still possible to get a loan with no money down?
• What is PMI (Private Mortgage Insurance? Why do I have to pay it?
• I know it used to be simple to get a mortgage? Is it still that easy?
• Can I take out a second mortgage and use that as a down payment for the first?
• Should I pay extra on my mortgage each month?
• Does it matter how long I have been employed? Will this effect my chances of getting a mortgage?

Once I have answered all these mortgage questions I will open the post up for comments. You can ask your own mortgage related questions and I or members of the blog will give the best answer we can. Please note I am not a professional or have any qualifications in this field, everything you read here is my personal opinion.

Private Mortgage Insurance (PMI)

Private Mortgage Insurance (PMI) is basically a third party insurance policy that covers a lenders risk when the buyer doesn’t have at least 20% equity in a home. So if you don’t pay down 20% or you don’t purchase your home for 20% less than what it appraises for then you will usually be required to pay private mortgage insurance or PMI.

The creation of PMI has allowed many buyers to purchase homes that normally would not be able to own their own home. For as little as 3% to 5% down potential buyers can purchase a home without having to save for a large down payment.

One important aspect of PMI you should always keep in the back of your mind is that once you have 20% equity in your home you are no longer required to pay this insurance policy. Some lenders require this 20% to be from the original purchase appraisal and others will allow a new appraisal amount at the current time. This is a big benefit if your home has increased in value over a short period of time. Usually you will have to contact the lender once you have 20% equity in your home in order to cancel the PMI. However, usually lenders are required to automatically terminate PMI once you have paid down the mortgage to 78% of the original apprasial value.

There are ways to avoid paying PMI. The first and most obvious is by paying down at least 20% of the loan at the time of purchase. The second method is a piggy back loan or taking out a second mortgage at the time of purchase. Before you choose an option consider the pros and cons of each type of loan.