PMI It Is Not All Bad

Dated: 07/16/2016

Views: 418

Johnson City Homes

Private Mortgage Insurance is an insurance policy issued by a private company that lowers risk for the lender. Some borrowers try to avoid it, but today, we look at reasons that it's not all bad. 

On the up side, private mortgage insurance, or PMI allows U.S. home buyers have a number of low, or even no downpayment options available to them. In a time when the largest home ownership challenge for Millennials is coming up with the 20% or more downpayment for a home, PMI is a great alternative. 

There are 4 kinds of Private Mortgage Insurance (that do not include those offered with government-backed loans like FHA, MIP):

  1. Borrower-paid (BPMI)

  2. Lender-paid (LPMI)

  3. Single premium

  4. Split premium

The most common of these is the BPMI, or Borrower-paid Mortgage Insurance. This type of insurance can be canceled at some point; you pay it until your loan principal drops to 78% of the home’s value, i.e, it drops off when you reach 22% equity in your home.  With Lender-paid insurance, the lender “pays” your mortgage insurance for you. But they don’t do it for free. Instead, they raise your mortgage rate. Take note, this kind of insurance cannot be canceled. Single premium is as the type implies, the borrower pays one single premium, in a lump sum, and up front. Split premium is  the least common type of private mortgage insurance, and allows the borrower to pay a portion of the mortgage insurance at closing, then spread out the remainder in payments. This type of insurance payment can be useful to borrowers who have high debt-to-income ratios, as it generally offers a discount on the PMI, bringing down the monthly payment to be able to qualify for a loan. 

Want to find out which of these options is best for you in your home buying journey? Call us! Our years of experience can ease your mind and get you on the right track to your new home. Our office number is (423) 433-6517, or we welcome you to come by to see us inside Keller Williams Realty at 1033 Hamilton Place in Johnson City. We look forward to seeing you!

Ready to begin searching for your dream home? Go here: Homes for Sale Tri-Cities TN to get started now. 

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Rayne Price

Holding a BS in Environmental Science, and MA in Education, real estate was not Shields Team Buyer Specialist Rayne Price's first career choice. It was only after encouragement from his wife and a cl....

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