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Mortgage Insurance

Private Mortgage Insurance (PMI)

What is Private Mortgage Insurance?

If you make a down payment of less than 20% of the purchase price of the home, mortgage lenders usually require that you take out Private Mortgage Insurance (PMI) that shields the lender in case you default on your mortgage payment. You may need to pay up to a year’s worth of premium for this coverage at closing.

How does Private Mortgage Insurance work?

Private Mortgage Insurance companies write insurance defending approximately the top 20% of the mortgage against default, the loan-to-value ratio “LTV”, and the particular loan program involved. Should a nonpayment occur, the lender sells the property to satisfy the debt, and is repaid by the Private Mortgage Insurance Company for any outstanding amount up to the policy value.

Could obtaining Private Mortgage Insurance help me qualify for a larger loan?

Yes. There are various types of ways to qualify for a loan but most traditionally Private Mortgage Insurance allows a borrower to qualify with higher Debt-to-Income ratios “DTI”. For instance, FHA; typically you can go up-to 55% DTI traditionally on a FHA Loan vs. a traditional Conventional Loan allows up-to 45% DTI which in turn allows you in some cases to qualify you for a larger home using Private Mortgage Insurance.

What are the cost figures?

Costs vary from insurer to insurer, it’s a fixed set costs when not changed by FHA but there are other Mortgage Insurance Companies with their own costs too and sometimes even cheaper! Contact us for more up-to date details.

History of Private Mortgage Insurance

Private Mortgage Insurance originated in the 1950s with the first large carrier, Mortgage Guaranty Insurance Corporation (MGIC), referred to as “magic”. For this reason, early Private Mortgage Insurance approaches were considered to “magically” assist in getting lender approval on an otherwise improper loan package.