| Lenders generally require you to purchase PMI - | | | | Otherwise make sure excess premiums are |
| Private Mortgage Insurance , if you can't come up | | | | refundable. |
| with at a least 20% down payment. PMI is a rather | | | | In 1998, Congress passed the Homeowners |
| expensive insurance policy that insures the lender | | | | Protection Act which went into effect the next year. |
| against default if you walk away from your home. | | | | This law establishes rules for automatic termination |
| Not everyone has to pay this insurance. There are | | | | and borrower cancellation of PMI on home |
| federal and state plans for low income earners to | | | | mortgages. These protections apply to mortgages |
| help them buy a home with little or no down | | | | signed on or after July 29, 1999 for the purchase, |
| payment and without mortgage insurance, If you | | | | construction, or refinance of a single-family home. |
| think you qualify, contact the FHA. Local bank and | | | | The law does not apply to government-insured FHA |
| mortgages brokers can also hook you up with these | | | | or VA loans or to loans with lender-paid PMI. |
| programs. | | | | For mortgages signed on or after July 29, 1999, your |
| Also lenders have come up with schemes to help | | | | Private Mortgage Insurance must be terminated |
| homeowners avoid paying PMI. These are generally | | | | automatically when you reach 22% equity in your |
| known as 20-80 or 10-10-80 loans or some variation | | | | home based on the original property value, if your |
| thereof. | | | | mortgage payments are current. PMI also can be |
| Basically the lender arranges for 100% financing | | | | canceled at your request when you reach 20 percent |
| through multiple mortgages, using whatever down | | | | equity in your home based on the original property |
| payment you have. These only make sense if the | | | | value, if your mortgage payments are current. |
| costs of the loans are less than the cost of the | | | | Exceptions are if your loan is considered high-risk: if |
| mortgage and PMI combined. | | | | you have not been current on your payments within |
| In this article we will only consider borrowers who | | | | the year prior to the time for termination or |
| don't have the 20% and don't want to or can't | | | | cancellation: or if you have other liens on your |
| qualify for 100% financing. | | | | property. |
| The main purpose of PMI is to allow you to buy a | | | | For these loans, your PMI will probably continue. Ask |
| home without having to wait years to save up the | | | | your bank for more information about these |
| down payment. Lenders are more comfortable if you | | | | exceptions. |
| put down 20% or more since you are less likely to | | | | If you signed your mortgage before July 29, 1999, |
| walk away from the house if problems arise. | | | | you can ask to have the PMI canceled once you |
| Private mortgage insurance covers the down | | | | exceed 20 percent equity in your home, but federal |
| payment if you default and makes lenders much | | | | law does not require your lender to comply. |
| more eager to grant a mortgage. | | | | The law also requires that: |
| Also you can buy a larger house if you use PMI | | | | New borrowers covered by the law must be told - |
| because your down payment can be as low as 5%. | | | | at closing and once a year - about PMI termination |
| However PMI costs at least $40 a month on a | | | | and cancellation. |
| $100,000 loan with 10% down. This is $480 a year | | | | Mortgage service agents must provide a telephone |
| until your equity is at least 20% of the value of the | | | | number for all borrowers to call for information about |
| house. | | | | termination and cancellation of PMI. |
| The borrower almost always pays for this insurance | | | | Even though the law's termination and cancellation |
| which can be billed: | | | | rights do not cover loans that were signed before |
| Annually. You pay the first-year premium at closing; | | | | July 29, 1999, or loans with lender-paid PMI signed on |
| an annual renewal premium is collected monthly as | | | | any date, lenders or mortgage service agents must |
| part of the total monthly house payment. | | | | tell borrowers about any termination or cancellation |
| Monthly. The cost is slightly more than with the | | | | rights they may otherwise have - rights established |
| annual plan, but dramatically lowers mortgage | | | | by contract or state law. |
| insurance closing costs. | | | | Some states have laws that apply to early |
| You pay your private mortgage insurance preminum | | | | termination or cancellation of PMI - even if you signed |
| monthly as part of your total mortgage payment, | | | | your mortgage before July 29, 1999. Call your state |
| but you only need to pay one month's mortgage | | | | consumer protection agency for more information |
| insurance premium at closing, rather than one year's. | | | | about your state's laws. |
| Single. You pay a one-time single premium. Since | | | | Fannie Mae and Freddie Mac, which buy home |
| single premiums are typically financed as part of the | | | | mortgages from lenders, also may have guidelines |
| mortgage loan amount, no out-of-pocket cash is | | | | affecting termination or cancellation of PMI on home |
| used for mortgage insurance at closing. | | | | mortgages signed before July 29, 1999. |
| However, since you are financing the insurance, you | | | | Check with your lender or mortgage service agent or |
| are also paying points and interest on the premium, | | | | call Fannie Mae or Freddie Mac for more information. |
| which increases its total cost. | | | | It pays to keep track of the equity in your home |
| Also make sure the single premium only covers you | | | | when paying PMI and asking for its cancellation once |
| until you build up sufficient equity in your home. | | | | you have reached 20%. |