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There are specific rules that mortgage
lenders must follow if you signed (or will sign) a mortgage after July
29, 1999. That's when The Homeowner's Protection Act of 1998 (HPA) went
into effect. In addition, many states have their own laws regarding
private mortgage insurance that are designed to protect homeowners and
save them money.
Tip!
There are many mortgage insurance policies available in the market.
Choose the one that suits your needs and requirements perfectly.
Like many other things about buying a
new home, the rules surrounding private mortgage insurance can be
confusing. Here are some answers to commonly asked questions about PMI
to help make it a little clearer.
Who has to pay PMI? Most lenders
require private mortgage insurance from home buyers who put down less
than 20% of the total value of their home - or conversely, who borrow
more than 80% of the total value of their home. This isn't a hard and
fast rule, though. Many lenders are loosening their requirements for PMI
to buyers with good credit, or who meet other requirements.
How much does PMI cost? Usually,
the premiums on private mortgage insurance are about .5 percent of your
loan total. If you take out a mortgage for $100,000, the PMI premium for
the first year will be around $500. On a $200,000 mortgage, you'll pay
about $1,000 for the first year's premium. Usually, your premiums will
be lower each year, since it's based on the amount that you owe on your
mortgage.
When do I have to pay the PMI premiums?
Most lenders require that you pay the first year's premium at closing,
so don't forget to add it in when you're figuring out your closing
costs. For subsequent years, you'll pay it along with your monthly
mortgage payment.
Do I have to pay for PMI until my
mortgage is paid off? No. The length of time you have to maintain PMI
varies from state to state and lender to lender, but you can generally
cancel your PMI when you have between 20% and 25% equity in your home.
The actual PMI percentage depends on the default mortgage rate in your
state. There are usually other requirements as well, such as no late
payments in the year before you request cancellation, and no other
mortgages or liens against your property.
How do I cancel my PMI? Under the
provisions of the HPA, your lender must automatically terminate your PMI
when you've paid down your mortgage to 78% of the original purchase
price or the appraised value of your home when you bought it, whichever
is less, as long as your mortgage payments are current when you reach
78%. If the mortgage was considered a high risk loan, it can be when you
reach 77%.
What does my mortgage lender have to
tell me? When you close on your house, you must be informed of: - the
date that you can request cancellation of PMI - when your PMI will be
automatically terminated
Once a year, you must be informed of: -
your right to cancel or terminate your PMI - a contact address or phone
number where you can find out when you can cancel your PMI
When your PMI is canceled, you must be
informed that: - Your PMI has been canceled, and you no longer have
private mortgage insurance - You no longer have to pay premiums for your
private mortgage insurance.
What this all means is in terms of
researching your home purchase, be wary of PMI consideration. Do your
homework and determine what the best scenario is for you. |
