Buyer's Guide
Lansing Area Real Estate
REAL ESTATE
 

Private Mortgage Insurance (PMI)
PMI makes it possible to obtain a mortgage with a low down payment

This is insurance provided by a Private Mortgage Insurance company
to
protect the lender against loss if a borrower defaults. This is generally required on loans of which the borrower is has a down payment of less than 20 percent of the appraised value or purchase price of the home. Mortgage insurance premiums are now tax deductible.

Most borrowers gladly accept PMI because 20% of the sale price of
a home is more money than many first time homebuyers are able contribute. For a $100,000 home, the buyer would need to have a down payment of $20,000 in cash. PMI will make it possible for the buyer to obtain a mortgage with a lower down payment because the lender now has protection against any default on the loan.   

How PMI is calculated 
PMI charges will vary depending on the size of the down payment and the type of loan you are securing. This fee generally amounts to about one-half of one percent (.005%) of the loan, and will become a part of your monthly payment. 

Example:
Suppose that you are buying a home for $100,000 and you able to pay 5 percent down ($5000). The lender multiplies the 95 percent loan, or $95,000 you are borrowing, by .005 percent. The result is an annual PMI of $475. This amount is divided into monthly payments of $39.58.

Don't pay PMI longer than necessary! 
Notify the lender when you believe that you have 20% equity in your home.

In most cases, PMI does not have to be paid throughout the life of the mortgage. 
You should be able to remove PMI once the equity in your home reaches 20 percent of the property value. You may have already increased your equity in the property by paying on the loan, through appreciation of real estate value, or by having made improvements to the property. Adding a room or remodeling the kitchen would greatly increase the market value of your home.                       

Don't wait for your lender to tell you when you've achieved sufficient equity to remove the PMI. Lenders are under no obligation to tell you when your loan has reached the point where PMI is no longer required.


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