Tuesday May 23, 2017

Private Mortgage Insurance

What is PMI?

PMI is insurance lenders require from most home buyers who need loans which are more than 80 percent of their new homes value.

In other words, borrowers with less than 20 percent down would normally need PMI unless they were to use a first and second loan combination known as 80/20, 80/15, 80/10 or any combination of the two loans.

Benefits of PMI

PMI benefits lenders by giving them added protection against defaults on riskier loans and by giving buyers the ability to obtain financing with a much smaller down payment than would otherwise be possible.

New Federal Law on PMI Requirements

The Homeowners Protection Act (HPA) sets new rules making it easier for homeowners to cancel private mortgage insurance (PMI) on primary residence loans secured by a borrower's principal residence.

It applies to loans that closed on or after July 29, 1999.  The new law makes dropping the PMI just as much the lender's responsibility as the homeowner's.

What Loans Are Covered?

The new HPA law does not cover VA or FHA guaranteed loans.  Neither does it cover high-risk loans.  The HPA does not give guidance as to what should be considered high-risk, leaving those requirements up to Fannie Mae and Freddie Mac.

How Do You remove or Terminate PMI?

Under the new HPA law in order to cancel your PMI you need to pay the balance down to 80% of the original purchase price.

You also need to have a good payment history with no 30 days late in the previous year or 60 days late in the previous two years.

If you have a second mortgage or your home is worth less than what you originally bought it for, expect to have some additional requirements.

Remember the new law still does not require lenders to remove PMI based on "current property value" all figures must be on original purchase price or original appraisal.

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