25
Apr
By First Rate Financial Group
Mortgage

How Do I Get Rid of PMI?

How to Get Rid of PMIHow to Get Rid of PMI?

PMI (Private Mortgage Insurance) is a type of insurance that lenders may require borrowers to pay if they have a down payment of less than 20% of the home’s purchase price. The purpose of PMI is to protect the lender in case the borrower defaults on the loan. However, once you have paid off enough of your mortgage or your home has appreciated in value, you may be able to get rid of PMI. Here are some ways to do so:

Pay down your mortgage: If you make extra payments on your mortgage or pay more than the required monthly payment, you can build equity in your home faster and reduce the amount of PMI you have to pay. Once you reach 20% equity in your home, you can request your lender to remove the PMI.

Refinance your mortgage: If you can’t afford to make extra payments, you may consider refinancing your mortgage to a lower interest rate. This could lower your monthly mortgage payment and help you build equity in your home faster. Once you have enough equity in your home, you can request your lender to remove the PMI.

Get your home appraised: If your home has appreciated in value since you bought it, you may be able to get rid of PMI by getting your home appraised. If the appraisal shows that you have 20% or more equity in your home, you can request your lender to remove the PMI.

Wait for automatic termination: If you have a conventional mortgage, your lender is required to automatically terminate your PMI when you reach 22% equity in your home, provided you are current on your mortgage payments.

Why Do Lenders Require PMI?

Lenders require PMI (Private Mortgage Insurance) when a borrower has a down payment of less than 20% of the home’s purchase price. The purpose of PMI is to protect the lender in case the borrower defaults on the loan. If the borrower defaults, the PMI will cover the lender’s losses up to a certain percentage of the loan amount, typically 20% to 30%.

Lenders require PMI because borrowers with less than 20% down payment are considered to be at a higher risk of defaulting on their mortgage. This is because they have less equity in the property, which means they have less of their own money invested in the home. If the borrower defaults, the lender may not be able to recover the full amount of the loan by selling the property.

PMI allows lenders to offer mortgages to borrowers with less than 20% down payment while still protecting themselves against the risk of default. Without PMI, lenders would likely require larger down payments, which would make it more difficult for many borrowers to qualify for a mortgage.

It is important to note that PMI is not the same as homeowner’s insurance, which covers damage to the property. PMI is solely for the benefit of the lender and does not provide any protection for the borrower. The specific requirements and procedures for removing PMI may vary depending on your lender and the type of mortgage you have. It is important to check with your lender to determine what steps you need to take to remove PMI.

23
Jun
By First Rate Financial Group
Mortgage

What Is Mortgage Insurance?

What Is Mortgage Insurance?When it comes to putting a down payment on a house, most lenders are going to ask for 20 percent; however, some lenders will be willing to accept a smaller down payment in exchange for something else.

That something else is usually mortgage insurance. If a lender says they are asking for mortgage insurance, which is also shortened to PMI, it is important for everyone to know what this means.

An Overview Of PMI

PMI stands for private mortgage insurance and is usually required if the borrower is putting down less than 20 percent. The lender will usually go out and find private mortgage insurance before shifting the premium for the insurance policy to the borrower.

Usually, PMI is included with the rest of the mortgage payment. The lender will take the portion of the mortgage payment that makes up the PMI and shift this into an escrow account. Then, the lender will simply move this out of the escrow account to the insurance company to cover the cost of the policy. This is the most common type of mortgage insurance.

What Is The Cost Of Mortgage Insurance?

The cost of PMI is going to depend on a number of different factors. Some of the factors include:

  • The amount of the down payment
  • The person’s credit score
  • The type of mortgage the borrower takes out
  • How long the mortgage is supposed to last

In general, the larger the down payment and the higher the credit score, the lower the mortgage insurance is going to cost. It is also important for people to note that mortgage insurance is not going to last for the length of the mortgage. As a whole, most PMI policies will be phased out once the amount of equity in the home reaches 20 percent of the home’s value. Then, the PMI will usually be waived.

The Purpose Of Mortgage Insurance

Some people might be wondering why they need to purchase PMI at all. This is an insurance policy that is meant to protect the lender against the risk of the borrower defaulting. If the borrower is able to convince the lender that their risk of default is low, they might be able to avoid being asked for PMI.

21
Feb
By First Rate Financial Group
Mortgage

FHA Down Payment Requirements: Homeownership Without A Big Savings Account

FHA Down Payment Requirements Homeownership Without A Big Savings AccountBuying a home for the first time can be a challenge. One of the tools created to help people buy a home for the first time comes in the form of FHA loans. There were loans that were supported by the Federal Housing Administration (FHA). They can require a down payment that is as low as 3.5 percent. 

FHA loans are significantly different from traditional mortgage loans. Those who have purchased a house before have likely heard that the average down payment is closer to 20 percent of the value. This can make it hard for someone to buy a home, particularly if they already have a car loan and credit card debt.

The Role Of The Credit Score For FHA Loans

Anyone who is interested in a mortgage with a down payment of 3.5 percent will want to do everything they can to make sure they have a strong mortgage application. This starts by taking a look at the credit score. 

A credit score of 580 or higher will increase someone’s chances of successfully applying for a mortgage with a 3.5 percent down payment. Those who have a credit score between 500 and 579 will likely be asked to put 10 percent down in order to qualify for a loan through the FHA program.

For example, someone who is looking to buy a home that costs $250,000 may only need to put down $8,750. On the other hand, if someone’s credit score is under 580, they might be asked to put down $25,000. This can make a tremendous difference to someone who is trying to purchase a home.

The Other Requirements Of An FHA Loan

While a small down payment is attractive to many people, one catch is that homeowners may be asked to purchase private mortgage insurance, or PMI, under this program. This insurance policy is required because the lenders through the FHA program are taking on more risk by accepting a smaller down payment.

PMI is a cost that will need to be paid monthly, in addition to the mortgage payment. Those who are willing to put down a larger down payment might be able to get the PMI requirement waived.

If you are in the market for a new home or interested in refinancing your current property, be sure to consult with your trusted home mortgage professional.