Can someone please explain what PMI's are in real estate?

Question

Thanks

Answer 1

Private Mortgage Insurance

The basics of private mortgage insurance (PMI)
By Bankrate.com

If your down payment on a home is less than 20 percent of the appraised value or sale price, you must obtain private mortgage insurance, known as PMI, with your lender. This will enable you to obtain a mortgage with a lower down payment because your lender is now protected against any default on the loan.

PMI charges vary depending on the size of the down payment and the loan, but they typically amount to about one-half of 1 percent of the loan, according to the Mortgage Bankers Association of America. Mortgage insurance premiums are not tax deductible.

Example
Let's say you put down 10 percent or $10,000 on a $100,000 house. The lender multiplies the 90 percent loan, or $90,000, by .005. The result is an annual PMI of $450, which is divided into monthly payments of $37.50.

Most home buyers need PMI because 20 percent of the sale price on a home is a lot of money; for instance, that's $20,000 on a $100,000 home. Home buyers must maintain the PMI premiums until they cross that one-fifth-of-principal threshold, a process that can take years in longer-term mortgages.

http://www.bankrate.com/brm/news/mtg/20010601b.asp

http://en.wikipedia.org/wiki/Lenders_mortgage_insurance

Answer 2

PMI = private mortgage insurance. That is where you, the buyer, pay the insurance premium for the lender to insure that if you default, they will still get paid.

PMI does nothing to protect you. Please always insist on title insurance at the closing table.

If you don't want to pay it (maybe an exra $40-75 per month) then you either need to have 20% for a down payment, or if your credit is strong you can ask for an 80/20 mortgage. This is where you take out a loan for 20% then use it for the downpayment, so you only have 80% on the other and so you don't pay PMI. On paper it's two different loans, but the can arrange it so that you make only one payment each month.

Answer 3

PMI is "private mortgage insurance" is an insurance that lenders use when a loan amount to property value exceeds 80%, if your not putting 20% down then you may be required to have this. PMI is only for conventional loans and you should also ask if the lender offers a "lender paid MI option" or a "TAMI" (tax advantage mortgage insurance) in which you have no monthly MI, but you pay a higher interest rate. Keep in mind this option should only be considered if your tax advisor indicates you will filing a schedule a to itemize your deductions. MI is not tax deductable, where the higher interest is. Hope this helps!

Answer 4

The PMI gives lenders incentive to seek out more business—in other words, to find more homebuyers like yourself, many of whom have never bought a home before and, like you, are able to put down the bare minimum 3 percent down payment. In a sense, we can all be grateful for the PMI, because without it, if you didn't have 20 percent to put down, you'd probably be out of luck

Answer 5

Insurance the lender has you buy to insure them that if you default on your mortgage they will get paid what they loaned from the PMI insurance and then the PMI will come to you for the debt. You normally only have to pay it until you get 20% equity.

Answer 6

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