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“What is PMI? Do I need it?”

PMI is an abbreviation for Private Mortgage Insurance. This insurance is provided by private mortgage insurers to protect lenders against loss if a borrower defaults. It was established initially in the state of California about 40 years ago to help people buy houses with less than 20% down. Now, loans traded in the secondary market require mortgage insurance if they carry a loan-to-value of over 80% (loan-to-value is the difference between sales price or appraisal, whichever is less, and the mortgage amount).

A lender may “self-insure” these loans (and recoup it in the interest rate) or purchase mortgage insurance through one of the private mortgage insurance companies. The costs will usually be determined by a combination of the amount of down payment and the borrowers’ credit score.

At The Mortgage House, we do financing with as little as 3% down. At this minimal down, the cost of mortgage insurance will be a bit more, and there is usually a price adjustment in the interest rate; however, often it is considered worthwhile in order to use such a low down payment. Saving for a down payment is often the most difficult task applicant’s face.

While most clients have been using FHA financing and its attractive low down payment of 3.5%, with the recent increase in the FHA MMI (Monthly Mortgage Insurance) to 1.35% annually, it is wise to compare Conventional financing before proceeding. Consider that when using Conventional PMI as opposed to FHA MMI, a borrower will be able to have the PMI removed in accordance with investors’ requirements.

Typically, this can be as soon as two years into the new mortgage and equity position of 20%. Under the latest FHA rules, a borrower would need to refinance in order to have the MMI removed.
Homeownership can be rewarding. It can provide not only a valuable tax benefit, but also a good feeling of community and security. It is always wise, however, to work with a mortgage advisor who will outline all of your choices before you proceed.

For more information on this and other financing options, contact Karen L. Davis, V.P. Regional Manager DOC#245892 – 951-695-2727,