When is Private Mortgage Insurance required?

Sam

Mortgage lenders generally require borrowers to purchase a private mortgage insurance policy (PMI) from any insurance company. The company pays the lender for the loss incurred due to any default in mortgage payments by the borrower. The borrower pays for the insurance premiums in the form of monthly premiums which are included within the monthly mortgage payments.

Not every borrower taking a mortgage loan needs to pay for private mortgage insurance premiums. The concept of this kind of insurance does not hold when you are refinancing your first mortgage with another home loan. As a borrower, you need to purchase a policy only when you have taken a mortgage loan in order to buy a house. The down payment in this case should be less than 20% of your appraised home value or the sale price, whichever has the least value. This implies that you should be paying for the premiums when are offered a loan amount equal to more than 80% of either of the appraised value or sale price.

A down payment of 20% of the sale price is a substantial amount, hence it requires several years to accumulate the amount. Individuals willing to purchase homes often fail to gather such a large amount of cash. This is where the PMI can be of help. It allows them to purchase their homes with lower down payment thereby paying for the PMI premiums on a monthly basis. A PMI often helps lenders make risky loans which cannot be made otherwise to moderate income buyers who lack the ability to make higher down payments.

You may stop paying for the insurance premiums when you have paid about 78% to 80% of your loan amount, that is, you have been able to build up the same amount of home equity.

Guest

Is the up front mortgage insurance and PMI use interchangeablely on FHA Loans?

Guest

Hi Tracy!

Along with the mutual mortgage insurance that is charged to the home owner each month, FHA also charges an upfront mortgage insurance premium of 1.50%. I think both are different and are charged separately.

gmakerley · Posted: Sat Sep 27, 2008 10:14 am Post subject:

mortgage insurance premiums charged by fha have changed. they range from 1.25% upfront to as much as 2.25% - all dependent upon credit score these days, and loan term.

and, yes, there is also a monthly premium, again based on credit score and loan term, ranging from .25% to .55%.

Guest

Hi,

If FHA UMIP is financed in the loan, do I still have to pay for it upfront? It would appear I would be paying twice. It is listed on my GFE although the amount of Upfront Mortgage Insurance Premium was added to the base price of my loan.

Thank you in advance for your help.

smithsussane · Posted: Wed Oct 28, 2009 1:06 am Post subject:

Hi shronbj!

Welcome to forums!

Your query has been answered in the given page:
http://www.mortgagefit.com/inprocess/about29869.html

Please take a look at it. I hope it'll help you.

Sussane

gmakerley · Posted: Wed Oct 28, 2009 7:45 am Post subject:

it has to be shown twice. the first notation reflects that there is in fact a charge of that amount...the second notation should clearly reflect that it is being financed as part of your loan. your loan officer ought to have been specific in going over this document with you so you could best understand it.

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