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Do I Need Private Mortgage Insurance?

By Mike in Buying Tips with 0 Comments

Private mortgage insurance, or PMI, is a special form of coverage that homebuyers must secure when purchasing a property with less than 20 percent down. The need for this coverage is determined by the borrower’s loan-to-value ratio, or LTV. As a homeowner’s principal balance is paid down and more of the property is actually owned, it is usually possible to do away with this additional expense entirely. Once the borrower has paid 20 percent of the loft or condo’s cost, he or she will have reached an LTV of 80 percent and the risk of extending funding will be sufficiently diminished for canceling the policy.

What PMI Does

Private mortgage insurance mitigates some of the risks that lenders take on when issuing large-sized loans. This coverage partially reimburses lending institutions in the event that homeowners default on their mortgage loans. It ensures that mortgage lenders are able to fully recoup their losses, should it be necessary for these institutions to sell lofts or condos in downtown San Diego at prices that fall below the related funding amounts.

High-Risk Buyers

Buyers with less than stellar credit or other factors that increase the risk of financing them may be required by their lenders to maintain this coverage far longer. Some lending institutions require borrowers to carry PMI until their loan-to-value ratios reach 50 percent. Factors that make it necessary for consumers to maintain these policies long after they’ve paid the first 20 percent of their purchasing costs include fluctuating or unstable incomes, a recent history of having purchased multiple properties, and past foreclosures.

FHA and VA Loans

Private mortgage insurance is specifically attached to the loans that private lending institutions supply. Government-subsidized loans, such as FHA and VA loans, have their own built-in protections. For these loans, this type of coverage is managed internally and operates a bit differently than PMI. Moreover, buyers who use FHA and VA loans will need to maintain this extra coverage throughout the lifetime of their loans, rather than ending their policies once they have attained specific LTVs.

For more information, reach out to a relator in downtown San Diego by calling 92101 Urban Living at (619) 649-0368. We know the area better than most in the business and can help you find just what you’re looking while explaining the process every step of the way. Reach out today—we look forward to hearing from you! ')}