Grand County Real Estate: Everything you need to know about Private Mortgage Insurance |

Grand County Real Estate: Everything you need to know about Private Mortgage Insurance

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

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

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