About Private Mortgage Insurance

Introduction to Private Mortgage Insurance

If you’re ever read anything about mortgages then undoubtably you’ve stumbled across the acronym PMI, short for Private Mortgage Insurance. When a borrower must borrow more than 80% of the value of the home from a single source then the lender typically requires that the borrower get PMI and pay for the premiums.

Historically, prospective homeowners were able to put down a 20% downpayment on a home when home prices were more realistic. With the recent and rapid appreciation of many homes, this is no longer possible for many families and single young professionals. What was once uncommon, 100% financed home purchases, is now commonplace and the number of homeowners who have private mortgage insurance has increased significantly.

When the Loan To Value (LTV) is greater than 80%, calculated by taking the loan amount and dividing it by the appraised value of the home, then you will be required to purchase private mortgage insurance. How much the PMI costs will depend on a variety of factors including your credit score, your actual LTV %, your mortgage type, and more but typically cost somewhere in the one-half of one percent of your loan.

So if you have a loan for $150,000 then expect your PMI to cost somewhere in the neighborhood of $750 a year.

This entry was posted on Wednesday, April 12th, 2006 at 8:17 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.