Posted by Mary-Lou McDonough on 2/26/2018

You can ask any homeowner-buying and owning a home is expensive. Mortgage payments, property taxes, utilities, and other bills quickly add up.

If you want to buy a home but donít have a large down payment saved, odds are youíve discovered something called private mortgage insurance (PMI).

PMI is an extra monthly payment that you make (on top of your mortgage payment) when you donít have enough to make a large (20%) down payment on your home.

However, if you want to buy a home and donít want to tack on an extra monthly payment for PMI, you have options. In todayís post, Iím going to talk about some ways to avoid paying PMI on your mortgage so you can save more money in the long run.

PMI Basics

Before we talk about getting rid of PMI, letís spend a minute on what to expect when you do have to pay it.

PMI typically costs 0.30% to %1.15% of your total loan balance annually. That means that your PMI payments will decrease a moderate amount as you pay off your loan.

Furthermore, once you have paid off 22% of your loan, your PMI will be cancelled and youíll only be responsible for your regular monthly mortgage payments.

Getting PMI waived early

With conventional loans, you can request to have your PMI cancelled once youíve paid off 20% of the mortgage. However, many buyers with PMI are using some form of first-time buyer loan, such as an FHA loan.

With an FHA loan, youíll be stuck with PMI for the lifetime of the loan if you donít make a down payment of 10% or more. Thatís a lot of PMI payments, especially if you take out a 30 year loan, and it can quickly add up.

If you have an FHA loan with FHA insurance, the only way to cancel the insurance is to refinance into a non-FHA insured loan. And remember--refinancing has its own costs and complications.

Making it to the 20% repayment mark

On conventional loans, the best way to get rid of PMI is to reach your 20% repayment mark as soon as possible. That could mean aggressively paying off your mortgage until you reach that point.

This can be achieved by making extra payments, or just paying more each month. However, you donít want to neglect other debt that could be accruing costly interest in favor of paying off your loans. Make sure you do the math and find out which debt will be more expensive before neglecting other debt.

Once you do reach the 20% repayment mark, youíll have to remember to apply to have your PMI canceled with your lender. Otherwise, it will be canceled automatically at 22%.





Posted by Mary-Lou McDonough on 12/25/2017

Applying for a mortgage can be a lengthy and difficult process. Lenders want to know that they are going to get a return on their investment.

To ensure that theyíll see that positive return they will take a number of things into consideration, such as your income, credit score, employment history, and financial capital.

First-time homeowners often struggle when it comes to these prerequisites since they have fewer years of numbers for lenders to consider. If youíre one of those people, donít worry--you can still purchase a home.

First-time homeowner loans, which are guaranteed by the U.S. government, and a number of private loans enable people to borrow money for a home without paying a huge down payment or having a vast credit history.

One downfall of said loans is private mortgage insurance, or ďPMI.Ē

In this article, weíre going to talk about what private mortgage insurance is, how to avoid it, and how to get rid of it. 

What is PMI?

If you make a down payment on a mortgage that is less than 20% of the loan amount, you will most likely have to pay private mortgage insurance.

PMI exists as a way for lenders to help guarantee they wonít lose money off of your loan. If you make a down payment of 20% or more, then lenders are typically satisfied that they wonít lose money from doing business with you.

PMI is not to be confused with home insurance, which protects you against damage and theft. Rather, it is an additional fee youíll pay to your lender each month that is added to your mortgage payment.

PMI is calculated based on a few considerations. Lenders will take into account your down payment amount, the value of the mortgage, and your credit score.

In terms of costs, PMI typically costs between .5 and 1% of the total mortgage amount each year.

Avoiding PMI

Naturally, itís best to avoid paying private mortgage insurance altogether. Private mortgage insurance has no future value for you and your family since it doesnít count towards building equity and doesnít protect you from any potential financial harm (your lender is the sole beneficiary of PMI).

Saving for a down payment can take time, and sometimes youíll need to rent or cut costs while you save. However, if you do take on a loan with PMI, you can still cancel it at a later point.

Canceling your private mortgage insurance

The first thing you should know about canceling PMI is that it usually isnít easy. Youíll need pay off at least 20% of the home, write a letter to your lender, and wait for an appraisal of the home. Once youíve done this, you still have to wait while your lender considers your request. In all, this process could take months--months that youíre still required to pay PMI.

Once common way to get out of PMI is to refinance. If the value of your home has increased since the time of you taking on the loan, the new lender likely wonít require PMI. However, youíll want to make sure that refinancing will get you a lower interest rate and cover the costs of refinancing. 




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