One of the ways our country’s financial system has enabled almost 65 percent of households to own their own home is through Private Mortgage Insurance (PMI). It makes it possible for homebuyers to get into a home for 3 percent or less. So how does PMI work to accomplish this?
PMI is an insurance policy issued by private companies that insures the mortgage against default. There is usually some kind of mortgage insurance on any loan that is more than 80 percent of the purchase price. An 80 percent loan on a $150,000 house, for instance, would be $120,000, and your down payment would be $30,000. Or, in other words, any loan with less than 20 percent down will generally cost you a PMI fee. Lenders feel that a loan with 20 percent or more down payment is not a risk if they have to foreclose. There’s enough equity to absorb any loss from the process. Bankers use the mortgage-speak term loan-to-value or LTV when taking about this ratio. In the above example, the LTV would be 80 percent. The value can be the sales price, appraisal, or other criteria. If you’re buying a home, the LTV would be based on the appraisal. A second mortgage loan might be based on a percentage of your equity. Or a small lender might go with a percentage of your county tax assessment value.
PMI is an insurance policy issued by private companies that insures the mortgage against default. There is usually some kind of mortgage insurance on any loan that is more than 80 percent of the purchase price. An 80 percent loan on a $150,000 house, for instance, would be $120,000, and your down payment would be $30,000. Or, in other words, any loan with less than 20 percent down will generally cost you a PMI fee. Lenders feel that a loan with 20 percent or more down payment is not a risk if they have to foreclose. There’s enough equity to absorb any loss from the process. Bankers use the mortgage-speak term loan-to-value or LTV when taking about this ratio. In the above example, the LTV would be 80 percent. The value can be the sales price, appraisal, or other criteria. If you’re buying a home, the LTV would be based on the appraisal. A second mortgage loan might be based on a percentage of your equity. Or a small lender might go with a percentage of your county tax assessment value.
No comments:
Post a Comment