What is Private Mortgage Insurance?

For most homebuyers, one of the biggest hurdles to owning a home is the down payment. Private mortgage insurance, or PMI, can allow you to purchase a home with less down than what is typically required.

Lenders and investors typically require mortgage insurance for loans with down payments of less than 20%. The mortgage insurance company provides lenders a financial guaranty should a loan go into foreclosure. It is this guaranty that allows many lenders not to require a 20% down payment when making home loans.

What are the benefits?

While mortgage insurance provides an obvious benefit to lenders, many times homebuyers will overlook the benefits MI affords them. These can be significant and may include:

  • Buying a home sooner – a higher loan-to-value ratio means less time is needed to save for a down payment.
  • Increased buying power – if you have a certain amount set aside for a down payment, using MI may help you afford more home than if you put 20% down.
  • Expanded cash-flow options – you may put less down and keep cash for other uses (making investments, paying off debt, or paying for home improvements or emergencies).
  • Cancelling coverage – many Mortgage Insurance options may be cancelled when no longer needed.
  • MI options

Mortgage insurance companies work with partner lenders to provide you several options when it comes to buying a home. Popular programs include:

Monthly Premiums

With this option, you would experience no increase in the loan amount and need no additional cash at closing. The premium amount is paid along with your monthly mortgage payment. Your MI coverage can usually be cancelled once your loan amount falls to 75-80% of your home's value.

Borrower-Paid Single Premiums

With this premium plan, you have the option of paying the MI premium in one lump sum at closing and making no monthly MI payments. Depending on your lender's guidelines and your individual situation, you may be able to finance the premium into the loan amount, reducing your closing costs.

State Bank of Cross Plains Mortgage lenders can offer many loan programs that have Mortgage Insurance.  Due to a lot of first time homebuyers not having a 20% down payment, mortgage insurance is a very solid alternative.  Our lenders can determine which loan program is right for the individual’s situation and will offer a few options for the customer to consider in purchasing a new home.

We are always here to help.

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