If you are embarking on a new home buying adventure – you will soon encounter the term “PMI.” So, what is PMI?
PMI stands for private mortgage insurance. PMI is required of buyers who put down less than 20 percent on their home loan – which is usually the case for most home buyers.
What is the point of PMI? While home owners’ insurance protects your investment, private mortgage insurance protects lenders’ investments and encourages and enables lenders to help more first time home buyers. Essentially, if PMI didn’t exist, lenders would require a higher down payment to mitigate the inherent risk in lending to first time home buyers. Many of us, especially first time home buyers, are not in a position to put down a 20% down payment.
PMI is available in a variety of premium plan structures and offers payment options that can usually be tailored to the borrower’s needs. There are a number of private mortgage insurance providers and each structure their offerings a bit differently. PMI can be canceled after a stated LTV achieved and favorable payment history has been established.
As a quick note, don’t confuse monthly insurance premiums (MIP) for PMI. MIP is the government-administered mortgage insurance program for the FHA that has certain restrictions and has undergone a number of changes recently. Read more about MIP, FHA Mortgages & FHA Streamline Refinancing.
Are you a first time home buyer with more questions about the home buying process and what loan programs are available to meet your home financing needs?Contact us at 888-936-4232.
Inlanta Mortgage offers Fannie Mae/Freddie Mac agency products, as well as a full suite of jumbo and portfolio programs. The company is fully delegated HUD-FHA including FHA 203K, VA, and USDA approved. Review Inlanta’s mortgage loan programs here.