What is Private Mortgage Insurance? Private Mortgage Insurance, or PMI, is insurance coverage provided to a mortgage lender to protect the lender against loss in the case of a default by the borrower.
Who offers Private Mortgage Insurance? Private Mortgage Insurance is offered by specialty insurance carriers who review for approval (or underwrite) each borrower application for coverage. Not all applications for PMI are approved. It is important for borrowers to work closely with their lender when PMI approval will be required for a mortgage loan to be approvable by the lender.
How much does Private Mortgage Insurance cost?
The cost varies depending on several factors, including loan type, loan-to-value and credit score. But it would not be unusual for the monthly PMI premium to over $100 on a $200,000 mortgage.
Who does Private Mortgage Insurance protect? Private Mortgage Insurance protects the owner of the mortgage in the event of a mortgage default. Based upon the terms of the Private Mortgage Insurance policy, the mortgage holder is able to recover all or part of the loss that occurs if there is a default on the mortgage.
Who pays for Private Mortgage Insurance? In nearly all cases, the borrower. It was not uncommon during the craziness of the period leading up to the mortgage meltdown that began in 2006, for lenders to pay for mortgage insurance when they packaged mortgages up and sold loans in bulk, but the practice is very rare today.
Who needs Private Mortgage Insurance? Generally speaking, Private Mortgage Insurance is required on purchase mortgages on which the buyer/borrower is making a down payment of under 20% of the purchase price. Stated differently, when the loan-to-value ratio on a purchase is over 80% PMI is usually required.
What types of loans require Private Mortgage Insurance? Private Mortgage Insurance might be required on any non-government (FHA or VA) loan where the loan-to-value ratio is above 80%.
Why don’t FHA loans require Private Mortgage Insurance? FHA loans do require mortgage insurance on loans with a loan-to-value above 80%, but FHA has its’ own mortgage insurance program. So, if you are getting an FHA loan and put less than 20% down, you will be required to get mortgage insurance, it’s just not Private Mortgage Insurance.
How long does a borrower have to pay the Private Mortgage Insurance premium? In most cases Private Mortgage Insurance can be removed when the loan-to-value ratio on the property drops below 80%. While there are typically conditions under which the PMI is to be dropped automatically, borrowers should assume that they will need to act in order to get PMI removed.
How does Private Mortgage Insurance help the borrower? Simply put, Private Mortgage Insurance allows the lender to make a loan that could otherwise not be made. What that means for the borrower is the ability to buy a property that they otherwise would not be able to buy until they save enough money to make a 20% down payment.
To whom do I speak if I have a question about my Private Mortgage Insurance? They party to whom you direct your mortgage payment is your mortgage servicer. Conventional wisdom says you should call your mortgage servicer with questions about your mortgage insurance, and your mortgage servicer is a good place to start, however, 1) do not assume your mortgage servicer will have the correct answers when it comes to questions about your Private Mortgage Insurance, 2) if you get an answer that is in ANY WAY unfavorable to your circumstances, look for another source of information.
Who should I call if my mortgage servicer is not helpful on Private Mortgage Insurance issues? The first person to call if your mortgage servicer does not provide the help you were looking for on your Private Mortgage Insurance is the loan officer who helped you with the loan in the first place. If that person is no longer available, or if you were not happy with the service the loan officer provided, ask around for a referral to a good loan officer. Loan officers are a great source of information on matters like Private Mortgage Insurance, and they will give you the help you need in hopes of earning future business from you.
What if my mortgage servicer refuses to remove my Private Mortgage Insurance? If you believe you meet the requirements for PMI removal, and your mortgage servicer refuses to work with you to remove it, contact a real estate professional or loan officer and ask for help. DO NOT take “No” for an answer if you believe you are entitled to have your PMI removed.
Does my mortgage servicer have to remove my Private Mortgage Insurance if my loan-to-value drops below 80%? Not necessarily. Many policies of Private Mortgage Insurance have a minimum coverage period. Additionally, if the loan is delinquent, or there is a history of mortgage delinquency, the mortgage servicer may not be required to remove PMI, even if your loan-to-value has dropped below 80%.
Are there conditions under which my lender is required to remove my Private Mortgage Insurance? Yes. Under the Federal Homeowner’s Protection Act, your mortgage servicer must remove your Private Mortgage Insurance automatically when you mortgage balance drops to 78% of the original property value. Put differently, when you pay down enough principal so that the loan-to-value, with the value being the original price you paid, drops below 78% your mortgage servicer must automatically cancel your Private Mortgage Insurance. Important Note: DO NOT wait for your mortgage servicer to cancel your Private Mortgage Insurance. In almost all cases, it is possible to have PMI removed well ahead of that time.
It sounds like the only one who benefits from Private Mortgage Insurance, is that true? Not entirely. While the cost of Private Mortgage Insurance is paid by you, the borrower, and the beneficiary of the policy is the lender that does not mean you do not benefit from Private Mortgage Insurance. Because, the home purchase you want to make with a down payment under 20% cannot be completed without a loan, and that loan cannot be approved unless the lender has Private Mortgage Insurance protection.