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Private Mortgage Insurance-PMI- Why Do I Need It?

Published Tuesday, October 28, 2008 by bloggerblognet22596 | E-mail this post

Private mortgage insurance or PMI as it is called is insurance that protects the lender not you the borrower. It is required on all Fannie Mae loans where the loan to value is over 80%. Loan to value ratio or LTV is calculated by taking the amount of the loan dividing it by the market value of the home. If a home is worth $100,000 and you had a mortgage of $90,000 the LTV would be 90% which means you would need PMI. If you default on the mortgage the lender is paid the difference between 80% and your loan to value. On the example above the lender would be paid on 10% by the private mortgage insurance company. This would amount to $10,000.

The monthly fee for PMI varies depending upon how large your mortgage is. The larger the mortgage the higher the premium. The mortgage insurance premium is larger the higher up you go on the loan to value. It will be higher at 95% than at 90% because the risk is greater for the mortgage insurance company. The monthly fee for private mortgage insurance can be anywhere from $20 per month to over $300.

If you are purchasing a new home the lender will go by either the appraised value or the purchase price, whichever is lower. This means that if you pick up a bargain at say $200,00 and the property appraises at $250,000 the lender will use the lower figure which is $200,000 to calculate if PMI is needed. This concept has always been a hard one for borrowers to understand.

Fannie Mae has just advised that the private mortgage insurance companies will not insure a mortgage where the borrowers middle score if less than 575 even if you already have a Fannie Mae approval.

Just another example of how you better keep your credit score in tip top condition in these days and times. If the mortgage meltdown continues they will surely raise that minimum score requirement. If you need credit repair get it done now. How do you know if you need credit repair? If your score is less than a 650 score you should get credit repair because your interest rate is going to be higher on every type of credit.

Sandra Sheely is President of First Financial Mortgage, Inc. in Sunrise, FL. She has been in the Real Estate Industry for 12 years with experience in the mortgage industry and title industry. She has a couple of Mortgage websites. http://www.ffinancialmortgage.com and http://www.lowestraterefi.com

She writes a mortgage blog her mortgage websites. She has a credit repair website at http://firstfinancial.fixcreditbiz.com/

Blogger BlogNet71256

Private Mortgage Insurance-PMI- Why Do I Need It?

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Blogger BlogNet71256: Private Mortgage Insurance-PMI- Why Do I Need It?

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