Grand County Real Estate: Everything you need to know about Private Mortgage Insurance
February 4, 2008
Q. I keep hearing about PMI; what is it?
A. Private Mortgage Insurance. Homebuyers who put down less than 20
percent on their homes are subject to paying PMI. For homebuyers,
it’s not likely to be the deciding factor for purchasing a home, but
is rather an avenue for purchasing without a 20 percent down payment.
Buyers often experience anxiety when they see the mortgage payment on
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paper for the first time, so the addition of PMI isn’t a welcome
sight. PMI was designed strictly for your lender’s protection and
not yours. Essentially, there’s nothing in the PMI for you. The PMI
gives lenders the opportunity to lend to buyers who do not have a 20 percent
down payment. PMI plays an important role in the mortgage industry
by protecting a lender against loss if a borrower defaults on a loan
and by enabling borrowers with less cash to have greater access to
homeownership. With this type of insurance, it is possible for you to
buy a home with as little as a 3 to 5 percent down payment.
This means that you can buy a home sooner without waiting years to
accumulate a large down payment.
Under The Homeowners Protection Act of 1998, you have the right to
request cancellation of PMI when you pay down your mortgage to the
point that it equals 80 percent of the original purchase price or
appraised value of your home at the time the loan was obtained,
whichever is less. You also need a good payment history, meaning that
you have not been 30 days late with your mortgage payment within a
year of your request, or 60 days late within two years. Your lender
may require evidence that the value of the property has not declined
below its original value and that the property does not have a second
mortgage, such as a home equity loan.
If you think your home value has increased, you may be able to cancel
PMI on your mortgage. Be sure to ask what documentation may be
required to demonstrate the higher property value. A simple phone
call may open the door for eliminating the extra dollars you are
spending each month on private mortgage insurance.
In my personal experience, I prefer private mortgage insurance to
reduce my required down payment over a first/second mortgage combo.
On my first home I had a second mortgage that was interest only and
after 10 years of ownership I had not eliminated any of the
principle. Historically strong appreciation in our market makes it
realistic to remove the PMI from a loan in a quicker timeframe than
other real estate markets.
Brenda Kellen is a broker associate who has worked with Omni Real
Estate for 10 years. She can be reached at 970.485.1115 or