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Private Mortgage Insurance for low down payment loan

Private mortgage insurance (PMI) is an amount paid by a private insurance company to a lender in order to prevent losses, in case a borrower defaults on his mortgage payments. When a borrower pays less than 20% of the appraised value or sale price as the down payment on a house, he is required to pay the costs of this insurance. In other words, if the ratio of the loan offered and the appraised value of the property, that is, the loan-to-value ratio or ltv ratio is more than 80%, then a borrower has to pay for private mortgage insurance.

For example
, Sarah wants to buy a house of $1,00,000. She takes a mortgage loan of $90,000 from David. Since the loan value is 90% of the property value and the down payment is only 10%, so she will have to pay for private mortgage insurance. In case she fails to make monthly payments in time, the insurance will pay David on behalf of Sarah.

Features:

  • The PMI charges depend on the amount of down payment and loan to value ratio.
  • The mortgage insurance premiums are tax-deductible.
  • A part of the private mortgage insurance premium is paid at closing and the rest is included in the monthly mortgage payment.
  • A borrower has to pay these insurance premiums until the home equity increases to 80% of the property value. But in case of mortgages insured by the Federal Housing Administration, the private mortgage insurance is to be paid throughout the loan term.

Benefits:

  • Private mortgage insurance helps a borrower to take a mortgage with a down payment as low as 3% or 5%.
  • It helps lenders from losses in case the borrower fails to make monthly payments on the mortgage.

Most of the mortgages require the payment of mortgage insurance premiums but there are some conditions under which a borrower may get rid off it. One way of doing it is to accept higher interest rates or make a down payment of 10% of the appraised property-value along with a first mortgage of 80% of the appraised value and a second mortgage for the remaining 10%.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi,

An 80-20 mortgage loan can be an option you can select if you can not pay for the down payment amount. But instead of selecting a no-cost loan you can wait for some more time, build some savings so that you are able to pay for the closing costs and then buy a home.

Like | Dislike | Share | Posted: Wed, 09/20/2006 - 15:02 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

HOW DOES PMI APPLY WHEN BORROWER DIES. IS THERE STILL A
FORECLOSURE? MORTGAGE PAYMENT NOTICE ONLY SHOWED
MORTGAGE PAYMENT DUE 46.02. BORROWER LEFT A WILL THINKING
MORTGAGE WOULD BE PAID OFF

Like | Dislike | Share | Posted: Wed, 01/27/2010 - 12:58 | Post subject:

gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

sidney, private mortgage insurance has nothing to do with mortgage life insurance. if there was mortgage life insurance on the debt, then a claim would need to be filed with that insurance company in order for the loan to be paid in full.

as for foreclosure, if there was a default on the loan, then presumably the life insurance benefit, if any, may have been defaulted on as well. typically, that's paid for along with the loan payment, so if payments cease on the loan, the insurance company will cancel its policy.

i think you've got some homework to do, frankly. perhaps the lender can assist you, though they're probably not all that helpful once a loan has gone into default.

Like | Dislike | Share | Posted: Wed, 01/27/2010 - 13:02

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

You have not mentioned your FICO score here. If your FICO score is good then you can take piggyback mortgage. Generally most of the lenders demand 680 for the second mortgage and 620 for the first mortgage. But if your credit score is not good enough then you will not qualify for piggyback loan.

Like | Dislike | Share | Posted: Mon, 01/02/2006 - 15:27

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Jonny,

When you are paying a down payment less than 20% of the sale price or the appraised home value then you will have to take PMI. One other option if you are not interested to pay PMI premium is to take piggyback mortgage loan and can avoid PMI premiums if you get the necessary approval.

If you are able to pay more than 20% as down payment then no question arises for PMI but if you are not able to pay more than 20% then I would suggest you to take mortgage loan with PMI. Though you will not get tax deduction on pmi premium and in the other option, if you take piggyback mortgage loan then you have to pay higher interest rates on second loan. The piggyback mortgage is a combination of two mortgage loans like 80/10/10 or 80/15/5 etc.

So my suggestion is if you are not able to pay more than 20% then it will be better for you to take a mortgage loan with PMI.

Like | Dislike | Share | Posted: Fri, 12/30/2005 - 15:17

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I want to take a mortgage loan and I have heard from my friend about mortgage loan with pmi and about piggyback mortgage but I do not know much about these types of loans and also do not know which one will be better for me. Please suggest me which loan shall I take, mortgage loan with pmi or piggyback loan?

Like | Dislike | Share | Posted: Fri, 12/30/2005 - 14:09 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Helen,

The PMI can be prepaid or rolled into the mortgage although rolling into the mortgage is not advisable.

Like | Dislike | Share | Posted: Fri, 04/14/2006 - 14:18

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

By $ cost per $1000 borrowed you are pointing towards APR on the loan amount or the Monthly Payment Per $1,000 Borrowed

Like | Dislike | Share | Posted: Fri, 04/14/2006 - 13:32

jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

If the loan involves a lender paid mortgage insurance, then the cost of the PMI is rolled into the mortgage itself. But it is not advisable to go for it as the payments are amortized over the entire life of the loan.

Like | Dislike | Share | Posted: Fri, 04/14/2006 - 13:22

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Helen,

Your Annual PMI will be $1287 with the monthly payment being $107.

Murphy

Like | Dislike | Share | Posted: Fri, 04/14/2006 - 13:05

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

On a 30 year fixed loan of $275,000 with 10% down payment, what is the PMI cost? Can you prepay the amount or roll it into the mortgage? Is there a $cost per $1000 borrowed?

Like | Dislike | Share | Posted: Fri, 04/14/2006 - 12:53 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Very simple...what is cheaper the pmi or the rolling over of the 20%. Short and long term scenarios

Like | Dislike | Share | Posted: Thu, 08/18/2011 - 09:47

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I personally feel that rolling over 20% as down payment is a better option. If you go for pmi, you will have to pay extra money towards it!

Like | Dislike | Share | Posted: Thu, 08/18/2011 - 22:50

Samantha's picture
Samantha | Joined: September 16, 2005 11:59 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi,

The two of them are different and serves under different conditions.

While a mortgage life insurance pays off the mortgage incase the borrower dies or becomes disabled, PMI is an amount paid by a private insurance company to a lender in case a borrower defaults on his mortgage payments.

PMI is meant to protect the lender and not the borrower.

God bless you.

For MortgageFit,
Samantha

Like | Dislike | Share | Posted: Fri, 07/28/2006 - 14:32 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I do not know whether my question has been already covered but I could not find it. Can we say PMI as another name for mortgage life incurance?

Like | Dislike | Share | Posted: Fri, 07/28/2006 - 14:24

jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi,

Your query is answered here. Kindly check and get back if you have more queries.

James

Like | Dislike | Share | Posted: Tue, 04/25/2006 - 13:01

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Are you required to have PMI on a preconstruction property locked in at $200,000 with a 5% down, when the same developer just sold an identical property for $270,000. It seems to me that the LTV ration is less than 80% and the accrued equitey is already above 22%. Is there a way to eliminate the PMI at closing?

Like | Dislike | Share | Posted: Tue, 04/25/2006 - 12:40 | Post subject:

gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

If you can afford to put 20 per cent down on a home, that's always a better idea. It provides equity right away, which is protective in an environment that we've started to become accustomed to, where values drop and seem never to cease doing so.

Like | Dislike | Share | Posted: Sun, 08/21/2011 - 15:10

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi there! My wife and I had a baby a few months ago, and with her being a full time mom, I am the only one bringing money to the household, therefore, we have no money saved. Is it possible to buy a house with 0% down payment and no money for closings costs, considering that I have an excellent credit score, or shoul I wait until we at least have some money saved?

Like | Dislike | Share | Posted: Wed, 09/20/2006 - 11:28 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi,

I can understand your situation. You can get 80-20 and no-cost mortgages provided by various lenders.

In 80-20 loans you will not have to pay any down payment or take out a PMI but you need to have good credit score which you do have.

Thanks

Like | Dislike | Share | Posted: Wed, 09/20/2006 - 14:05 | Post subject:

jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi,

As your credit score is quite good you will be able to qualify for a 80-20 loan. You can read about such loans from this page.

In addition I would also tell you not to go for a no-cost loan and wait until you have some savings for payment of closing costs.

You can read one of the previous discussions to know why I am saying this, no-cost loan details.

James

Like | Dislike | Share | Posted: Wed, 09/20/2006 - 17:06 | Post subject:

Caron's picture
Caron | Joined: July 19, 2005 08:37 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

hi guest,

you can buy a house with no down payment by selecting a suitable mortgage lender who is willing to offer you a loan without down payment. but then you may have to pay a higher rate of interest.

lenders do charge a higher rate of interest from borrowers providing no down payment on the purchase price. also, they charge high rates on no cost loan as the closing costs are included within the loan amount. as you are the only earning member in your family, so, if you can give yourself some more time and accumulate some savings before buying a house, that'll be great.

i would not recommend an 80-20 loan as you might have to pay a high rate of interest especially for the second mortgage. in your situation, where you couldn't save a good amount of money, it's better to avoid managing two mortgages. so, just wait for some time and gather some savings for buying the house.

thanks,

caron.

Like | Dislike | Share | Posted: Thu, 09/21/2006 - 00:31 | Post subject:

helping_user's picture
helping_user | Joined: March 31, 2006 03:39 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

hi guest,

you can take a no down payment or a no-cost 5/1 arm loan in order to buy a house, though you may have to afford a slightly high rate of interest. but the interest rate on this arm is around 6% currently, so you need to find a lender who is willing to offer you a loan at a preferable rate.

the interest rate on this arm will be fixed for at least 5 years after which it will go up on a yearly basis. at the end of 5 years, you can refinance the arm with a fixed rate mortgage. thus for the first 5 years your monthly payments will be fixed. within this time period, you can save a good amount of money and then use it to pay the closing costs when you refinance.

thanks

Like | Dislike | Share | Posted: Thu, 09/21/2006 - 03:46 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

My HUD-1 states that the PMI is rolled into the mortgage, but I am also being charged the same amount ($2,000) at the closing for Line 902 - Mortgage Insurance Premium.. is this a mistake on the attorneys end? It has inflated my closings costs to a few dollars shy of $9,000! On a $160K loan with $20K down.

Like | Dislike | Share | Posted: Thu, 10/09/2008 - 04:14 | Post subject:

smith.sussane's picture
smith.sussane | Joined: September 18, 2008 09:57 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Mike A!

Welcome to Forums!

I think its a mistake on the part of the Attorney. It will be better if you could speak to your attorney and ask him to rectify it if its a mistake.

Sussane

Like | Dislike | Share | Posted: Sat, 10/11/2008 - 00:26 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Thanks!

Like | Dislike | Share | Posted: Mon, 10/13/2008 - 21:39 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

What would my PMI be on a Loan of $143,500 with 10% down on a 30yr fixed rate mortgage?

Like | Dislike | Share | Posted: Thu, 12/11/2008 - 10:37 | Post subject:

adonis's picture
adonis | Joined: October 22, 2005 05:04 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Welcome Aaron,

You can check out the following link to find a PMI calculator:
"http://www.goodmortgage.com/calc_pmi.htm"

If you put in the values at the respective boxes, you will get the PMI you need to pay.

Like | Dislike | Share | Posted: Thu, 12/11/2008 - 23:40 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Our PMI is not escrowed. If we make the mortgage payments but fall into arrears on the PMI payments what can the insurance company do to us, to our property? Can they auction off the property for example?

Like | Dislike | Share | Posted: Mon, 03/30/2009 - 23:14 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

If you do not pay the arrears on the PMI, the insurance company can stop the coverage. They may even place lien on your property.

Like | Dislike | Share | Posted: Wed, 04/01/2009 - 01:57 | Post subject:

gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

how is it that your mi payment isn't escrowed? is your lender nuts?
i don't have an answer to your question, because i've never heard of such a situation.

Like | Dislike | Share | Posted: Wed, 04/01/2009 - 10:49 | Post subject:

jenkin7's picture
jenkin7 | Joined: June 4, 2007 11:02 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi JJ,

Lenders generally approve loans with 75-80% LTV ratio. Loans with more than 80% LTV are considered as higher risk by the lender. Thus, even if they offer loans with more than 80% LTV, they will require you to purchase mortgage insurance and it will be based on the entire loan.

Like | Dislike | Share | Posted: Mon, 05/04/2009 - 01:32 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi
My house is appraised at $193,000. I need $161,000 to refinance for a cheaper interest rate I don not currently have PMI. My question do I have to pay PMI on the $161K or just the $5K needed to meet the 80 LTV ratio? If my credit score is 720 can I find someone to do it without PMI?

Like | Dislike | Share | Posted: Tue, 04/28/2009 - 18:05 | Post subject:

Realgeni's picture
Realgeni | Joined: April 13, 2009 08:03 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

PMI will be based on the entire loan and will nto go away until you loan value reduces to 78% of your house value.

you need to call your lender and ask them to remove the PMI. They are suppose to remove it legally after your loan reaches 78%, but its your responsibility also.

Your loan documents may have established minimum time period for PMI. In this case, the seasoning requirement, if it exists, would be spelled out in your loan documents.

Another way to look at it:

PMI goes away one of three ways:
1) your mortgage balance reaches 78% of the original purchase price;
2) you can show that you have at least 20% equity in the home; or
3) you refinance and have at least 20 % equity in the home.

Like | Dislike | Share | Posted: Tue, 04/28/2009 - 20:17 | Post subject:

Realgeni's picture
Realgeni | Joined: April 13, 2009 08:03 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Eric is correct. Your payment will be higher due to PMI and higher interest.

Like | Dislike | Share | Posted: Tue, 05/05/2009 - 16:26 | Post subject:

eric1's picture
eric1 | Joined: January 4, 2009 03:52 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Not only will you have to purchase mortgage insurance (PMI), but your rate will most likely be higher also. Therefore, your payment will jump significantly when you go from 80LTV to 81 LTV

Like | Dislike | Share | Posted: Mon, 05/04/2009 - 04:21 | Post subject:

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