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Private Mortgage Insurance Lenders typically require a down payment of at least 20 percent of the purchase price. Private mortgage insurance makes it possible for a homebuyer to obtain a mortgage with a down payment as low as 5% and for low-to-moderate income homebuyers as low as 3%. Private mortgage insurance may be also required when buying a second home or refinancing an existing mortgage with cash out. Mortgage insurance protects the mortgage lender against financial loss if a borrower defaults.Low down payment mortgages are becoming more and
more popular. Mortgage insurance allows borrowers to purchase a more expensive
home than they might otherwise be able to afford. With lower down payment you
retain more for home furnishings, or buying a car or other investments.
Typically, a portion of the mortgage insurance
premium (depending on the premium plan chosen) is paid up front at closing, and
the rest is paid as part of the monthly mortgage payment. Under an annual plan,
a borrower pays the first-year premium at closing. Monthly plan allows
homebuyers to pay 1 or 2 month's mortgage insurance premium at closing. With
single premium plan a borrower need to pay a one-time single premium. Some
mortgage insurance plans allow adding the amount of the mortgage insurance
premium to the loan amount. In that case borrowers make no mortgage insurance
payment at closing and the first insurance payment is made with the first
mortgage principal and interest payment.
The mortgage insurance premium is based on loan
to value ratio, type of loan, and amount of coverage required by the lender. The
good faith estimate of closing costs provides the estimated premium and monthly
cost for the private mortgage insurance coverage.
It may be possible to cancel private mortgage insurance at some point, such as when your loan balance is reduced to a certain amount - below 75% to 80% of the property value. The law in certain states requires that mortgage insurance be cancelled under some circumstances. But because of the wide variation in lender, investor and state requirements, it is necessary to find out the specific requirements for cancellation before you commit to paying for mortgage insurance.
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