Give PMI a Chance; There are Benefits!
What is PMI?
Private Mortgage Insurance (PMI) is an insurance premium paid by homeowners who have put down less than 20% on the home they purchased. Lenders require this as a safety cushion for themselves in the event the homeowner defaults on their loan.
The theory behind it is that if a homeowner cannot afford to put a sizable amount of money (over 20%) down then they are more at risk to default on their loan thereby creating the need for lenders to insure the situation.
Who is required to have it?
While there may be rare situations where lenders waive PMI fees, generally most lenders will require it if less than 20% is put down on a home. Refinancingsituations also require PMI if the loan amount is over 80% of the appraised value.
How is it paid for?
PMI is often worked right into the monthly mortgage payment. It can also be paid in a lump sum at closing. Once the homeowner has paid at least 20% of their loan, they can contact their mortgage company to get the PMI taken off. Mortgage companies generally will not automatically stop the PMI until the loan is at 22%.
What are the benefits of PMI?
While it is an extra cost for homeowners, PMI does have some benefits!
- More Mortgage Opportunities
One of the biggest benefits would be that PMI makes the possibility to get a home with a lower down payment much higher. Not everyone is fortunate enough to have a large enough savings to put down on a home so in this respect, PMI though having a cost, can improve the chances of getting a mortgage.
- Tax Deductible
PMI is tax deductible. When filing taxes, homeowners should remember to print out a copy of what they have paid in PMI through the year. It is often mailed out at tax season by mortgage companies.
- PMI Policy Benefits
PMI also comes with a few benefits worked right into the policy. One is a “Partial Claims Advance.” This benefit is for homeowner’s who get into a situation where they cannot make their payments.
The homeowner would reach out to the lender and explain their circumstances. The Lender then requests a partial claim advance from the PMI insurer. If the homeowner’s situations are included in the conditions covered, the PMI will cover a certain amount of mortgage payments in the agreement that the homeowner will repay the insurer.
The second type of benefit that is included in the policy is “Job Loss Protection.” If a homeowner has a loss of income from situations specified by the insurer, the mortgage payments will be covered up to a certain amount of money.
Not all PMI policies will have the Partial Claims Advance and Job Loss Protection benefits but homeowners do have the right to ask the Lender to choose a specific PMI insurer.
Doing some research can help consumers find the insurers who do offer these benefits and they can then request that the lender use them. Note: FHA and USDA loans have mortgage insurance provided by the government so homeowners cannot choose the insurer.
More Mortgage Resources
- How to Get Rid of PMI – Bill Gassett
- 10 FHA Guidelines Every Home Buyer Should Know – Luke Skar (Inlanta Mortgage-Madison)
- How to Get a Mortgage with No Down Payment – Total Mortgage Services
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