Why Do I Have PMI?
Here is the simply truth about PMI (Private Mortgage Insurance) – mortgage insurance protects lenders against losses in the event that a borrower stops making payments on their mortgage. Mortgage insurance protects the lender- not you- if you default on the loan. The only good thing about mortgage insurance, for the borrower, is that it lowers the risk to the lender so you can qualify for a loan that you might not otherwise been able to qualify for.
The type of mortgage insurance required will usually depend on the type of mortgage loan you have. There are two types of mortgage insurance: one type is an insurance bought from the government for FHA Mortgages, VA Mortgages, or USDA loans. The other Private Mortgage Insurance is a type of insurance used with conventional loans.
FHA mortgage insurance is required for all FHA loans. FHA mortgage insurance includes an upfront mortgage insurance premium (MIP) and a monthly cost. If you don’t have enough at closing to pay the upfront cost, you can roll it into your mortgage instead. However, if you do this, your loan amount and the cost of your loan will increase. With VA loans, there is no monthly mortgage insurance premium but you will pay an upfront “insurance funding fee.” Just like with a FHA loan, you can roll the funding fee into your mortgage but this will increase your loan costs as well. USDA mortgage insurance will generally lower, annually, as you build more equity in your property.
How Can I Get Rid of PMI?
Private Mortgage Insurance (PMI) is usually required on conventional loans if you put down less than 20 percent of the home’s purchase price. Once you’ve built up a certain amount of equity in your home (usually 20 percent), you can request to cancel PMI. However, you can typically avoid paying PMI when you put down 20 percent or more on a home purchase. The other option to avoid PMI on conventional loans is to do something called a Lender Paid MI Program – where the lender raises your rate a bit and builds the insurance into that monthly cost.
Northeast Financial has several different programs with no PMI that will allow a buyer to obtain a mortgage with less than 20 percent down and not incur the additional cost of PMI. Give us a call today to discuss your options.
President of Northeast Financial
210 S. Main ST. Middletown, CT
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