What is PMI? ‘“The Truth about PMI
PMI or Primary Mortgage Insurance is a protection used by lenders in case a borrower gets default on a mortgage. It also protects lenders or banks in the event that a borrower lost ability to pay and the home would go into foreclosure. Lenders usually require a borrower to pay 20 percent down payment on a home loan. However, not all borrowers can provide the 20 percent down payment. In this event, lenders will mark them as high-risk investment. The remedy is to require borrowers a PMI payment.
PMI offsets losses in the event that a borrower fails or lose capacity to repay the loan. This will be very hard on the lenders especially when they will not be able to recover the cost after foreclosure and sale of the property being mortgaged. PMI was created in the favor of lenders.
Somehow, PMI contradicts its name for it will not actually protect the borrower. It protects the bank or lender to cover or get back a portion of the money lent once you default. The burden of paying the premium is still carried by the borrower. However, there are some banks or lender, which offer their own policies. In such case, these banks and lenders make it easier on borrowers.
The game of mortgaging is all about the ability to pay. If a borrower can always pay on time there would not be any problem. However, if for any reason a borrower fails and can no longer pay, the insurance will have to pay the bank. The payment is an additional fifteen percent of the mortgaged property’s value.
In reality, PMI can cost you a substantial amount to your monthly mortgage payment. It is advised that you avoid PMI at all possibilities you can. You can opt to try to save for the 20 percent mortgage down payment. Another possible way to avoid PMI is to find lenders or banks that does not require PMI. However, the mentioned methods may be hard to do.
Fortunately, you still have other options to get away with PMI. If you still have not enough cash for the 20 percent down payment for the mortgage, you can apply for a personal loan. Just be sure to apply for a personal loan that does not require PMI. You can use the loan to pay for the mortgage down payment. However, this strategy will not always work. Qualifying for the personal loan will tend to increase your debt to income ratio. This will affect your credit score and you may not be granted a mortgage loan.
Still, the best option considered to get away with PMI is to apply for federal government programs. Federal government programs often will not require a borrower to pay for a huge amount of down payment or PMI. However, if in any case PMI is unavoidable, borrowers can still ask lenders to remove PMI once they reached the accepted levels in monthly payment. Most of the times, borrowers do not know this option or either most of them forgot about that PMI can be removed.