PRIVATE MORTGAGE INSURANCE PRIVATE MORTGAGE INSURANCE
WHAT IS PMI?
Private mortgage insurance (PMI) is a "default insurance" meant to protect the lender from loss in case of default. Mortgage insurance is often required on mortgage loans with low down payments. The buyer pays the premiums, but mortgage insurance protects the lender, not the buyer.*
In case of default, a lender can foreclose and then sell the house to recoup the money loaned you. With PMI coverage, if the foreclosure sale does not cover all of the lender’s investment, the mortgage insurance company helps cover the lender’s loss.
WILL PMI BE REQUIRED ON MY MORTGAGE?
PMI is usually required on conventional mortgages when the buyer’s down payment is less than 20%. FHA mortgages always require mortgage insurance (called MIP), regardless of the amount of your down payment.
Some special mortgage programs , however, offer low down payment mortgages without requiring PMI. (Check the mortgage program descriptions in the Living in Cleveland Center’s Cleveland Mortgage Bulletin, or check with the lender.)
HOW WILL PMI AFFECT MY MORTGAGE?
The monthly cost of PMI coverage will depend upon the mortgage amount and the size of your down payment. The monthly premium is added to your monthly mortgage note.
The lender chooses the mortgage insurance company. After the lender has approved your mortgage, your mortgage is submitted to the PMI company for its approval, also.
DO MY PMI PAYMENTS STOP AFTER I’VE BUILT UP EQUITY?
Many PMI agreements have a provision for dropping monthly premiums once a sufficient equity level or other stipulation has been met. It’s usually up to the homeowner, however, to contact the lender and initiate that request. In considering your application to drop the PMI requirement, lenders will usually require an appraisal of the property and closely review your mortgage payment history before making a decision.
*Mortgage insurance does not make your mortgage payment if you are unable to do so. It is not to be confused with mortgage life insurance or mortgage disability insurance, which can do so.