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Private Mortgage Insurance (PMI) Basics for Consumers
Who needs PMI?
All home buyers can benefit. It allows them to become homeowners sooner, and it dramatically increases their buying power — excellent benefits from a buyer's perspective. First-time buyers can use a low down payment to help them afford their first home, or to purchase a more expensive home sooner.
Repeat home buyers can put less money down and gain significant tax advantages because they will have more deductible interest to claim. They can also use the cash they would have used for a large down payment for investments, moving costs or other expenses.
When Is PMI "Required?
When
a lender makes a homeowner a loan that is above 80% of the home's value
the lender is required by federal regulations to insure that portion
of the loan that is above 80%. Guess who pays for it? You, the consumer,
of course. However there is no need to pay for it for the life of your
loan.
What is PMI?
PMI or Private Mortgage Insurance is normally required when you buy a house with less than 20% down. Mortgage insurance is a type of guarantee that helps protect lenders against the costs of foreclosure. This insurance protection is provided by private mortgage-insurance companies. It enables
lenders
to accept lower down payments than they would normally accept. In effect,
mortgage insurance provides what the equity of a higher down payment
would provide to cover a lender's losses in the unfortunate event of
foreclosure. Therefore, without mortgage insurance, you might not be
able to buy a home without a 20% down payment.
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Typically PMI is required for a sale if there is less than a 20% down payment.
- Not all lenders require PMI, even for low down payment loans.
- PMI protects the lender, not the consumer.
- PMI costs vary but are usually 0.5% of the loan amount for the first year of the loan, with lower payments in later years.
- PMI is collected by the loan servicer, and sent to the PMI company.
- PMI removal is based on both the payment history and the value of the collateral (house).
- Early cancellation PMI removal requirements vary considerably among lenders.
- There are only four companies that offer PMI.
Can I get rid of the PMI on my loan?
Once your mortgage loan amount falls below 80% of the value of your home, and you have made your payments on time for two years, you can apply to your lender to have the PMI removed from your loan, which will make your monthly payments go down.
Lender criteria
varies widely for PMI removal. Your first
step is to contact your lender (the company you send your payments
to). Contact information should be on your payment stub or invoice.
Request a letter outlining the specific requirements your loan must
meet in order to qualify for PMI removal.
If you don't know your current loan balance or the amount of
equity needed to meet their loan-to-value
(LTV) threshold, be sure to ask them for that information.
An
important point we would like to stress is that if your lender says
your loan balance should be below 80% of your home's value. That is
your home's current value,
which is not necessarily what you paid for your home. So it doesn't
mean that your loan balance has to be below 80% of the original sales
price. Paying down the loan via monthly payments is one way to decrease
the loan to value ratio, however your house may have appreciated in
value since you purchased it. In addition if you have made significant
improvements to your home the value may have increased.
Step 2 - Do You Qualify?
We
are using the figure of 80% because it is a rule of thumb. Check with
your lender for their specific requirements. There are literally
hundreds of loan programs, all with different requirements so make sure,
before you do anything, that you review YOUR lender's "PMI Letter".
If
you have paid off at least 20% of your original loan amount there should be no
need to establish your home's current value.
However, if you think you meet your
lender's LTV requirements based on appreciation in value since you purchased
your home or if you have made significant improvements to your home,
the lender in most cases will require an appraisal.
If
you're not reasonably confident that your home's current value meets
your lender's requirements you'll need to do some "homework".
Maybe you feel like you don't need an "appraisal"
at this stage, but you'd like some help gathering local property and
sales data. At Brian J. Davis & Associates we provide
low cost sales and listing reports that will guide you through the maze
of raw data. Our reports transform confusing market data
into charts and graphs full of information
that you can use to make an informed decision and decide if you
need to order a "full appraisal".
Our
"Neighborhood Sales Data" reports are NOT appraisals but rather custom sales data reports designed to help
YOU to determine for yourself
if you have sufficient equity in your home to have your PMI insurance
cancelled. This is a preliminary
step. The fee for your Neighborhood
Sales Data Report will be credited
towards your PMI Appraisal fee if the appraisal order is placed
within thirty days.
Step 3 - Get an appraisal
Once
you've checked with your lender and determined out that you are a candidate
to have the PMI removed from your loan your lender will most likely
tell you to get your home appraised. Brian J. Davis & Associates
is experienced in helping folks just like you rid themselves of unneeded
and unwanted PMI insurance.
Be sure that you request Brian J. Davis & Associates if the lender asks you for your choice of appraisal firms if you are located in McLean County, Illinois. More than likely we are already on their "approved list", and if not we will provide your lender with the necessary documentation to become approved.
Additional Information Regarding PMI Cancellation
House
Passes Legislation Saving Homeowners Hundreds of Dollars
Frequently Asked Questions About Private Mortgage Insurance - NAR
What is Private Mortgage Insurance?
Can I Cancel Private Mortgage Insurance?
What are the Payment Options for Mortgage Insurance?
How Does Private Mortgage Insurance Differ from FHA Insurance?
Are you one of the million U.S. homeowners overpaying their mortgage insurance?
Private
Mortgage Insurance -- How NAR-Supported Legislation Will Help Home
At Brian J. Davis & Associates,
you can expect. . . .
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Prompt response to your initial inquiry. We will give you personalized information for your particular appraisal need. Just tell us your situation and we will make suggestions. Use our Fee Quote/More Info Form to let us know what you need and we will promptly reply. Or you can fax your request to us at 309 662-4070, or call us at 309 662-4070.
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Quick turnaround time: Typically one week or less from the date the request is received. If you've chosen to receive a copy of your appraisal or consulting report via the Internet (EDI), you'll receive it within MINUTES of its completion.
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Direct communication: We're available and accessible! If you've ordered your appraisal On-Line or provided us with your email address, we'll send you "Status Updates" to keep you informed of the appraisal's progress.
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Appraisal and consulting reports formats to suit YOUR needs: When it comes to appraisal and consulting, "One size does NOT fit all!" We offer a variety of report types and delivery methods. Express mail too slow? We can deliver your report attached to a standard email, or notify you of an Internet site to download your report, the MINUTE it's completed!
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Quick response to follow-up questions. Our reports are clearly written, understandable, and meet or exceed the Uniform Standards of Professional Practice that governs the appraisal practice. We also provide "Individual" clients with a detailed brochure to help you in "Understanding Your Appraisal". If you have any questions regarding your appraisal, after you've read the report, we encourage you to email or call us!
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Competitive price schedule. We have a complete menu of appraisal types and their fees available on our Web site. Examples of the forms and sample reports are also available on-line to help you choose the type of report that's BEST for YOU.
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Online Appraisal & Consulting Orders are available by using our convenient Online Appraisal Order form or FAX your order to us at (309) 662-4070, or call your order in to (309) 662-4070. Do not hesitate to contact us if you have a special request or a question. We understand the complexities of selling a home and know what you are going through and will do our best to make it easier for you by giving you a high quality, professional appraisal that you can depend on.
