Understanding PMI (Private Mortgage Insurance)

Lower downpayment loans are again becoming available and buyers who take them will be paying PMI. The cost of this insurance adds to the monthly cost of home-ownership and isn't tax deductible.  Home buyers should understand what PMI is and how they can avoid it.

PMI (Private Mortgage Insurance) protects your lender if you default on your loan.  Although the insurance protects the lender - you pay the premium, generally every month along with your loan payment.

Almost everyone taking a loan on a home purchase with less than a 20% downpayment will be subject to PMI but there are couple of ways to avoid it.

• If you can't afford to make the 20% downpayment then you may be able to take an additional loan to make up the shortfall.  The additional loan payments may be cheaper than PMI depending on the interest rates available to you.  You should discuss this option with your loan officer and make sure you have all the financial information you need to make a comparison.
• Another alternative may be to ask for help with the downpayment amount from a family member.  Lenders are very cautious about these arrangements. The money MUST be a gift, not a loan arrangement and must usually come from a close family member. Make sure you discuss this with your lender so that you can provide the correct documentation & information they require.

If you can't get the 20% downpayment make sure you understand how to cancel the PMI once you have reached a 20% ownership in your home by making regular mortgage payments.  Ask your mortgage company before you take the loan what the procedures will be for ending the PMI payments and make sure you follow the instructions carefully. 

If you need more information about loans or PMI let me know!