PMI companies write insurance policies to protect approximately the top 20% of the mortgage against default. This depends on the lender's and investor's requirements, the loan-to-value ratio, and the type of loan program involved. Should a default occur the lender will sell the property to liquidate the debt, and is reimbursed by the PMI company for any remaining amount up to the policy value.

Yes, it will help you obtain a larger loan, here’s why. Let's say that you are a family with $42,000 Annual Gross Income and monthly revolving debts of $800 for car payment and credit cards, and you have $10,000 for your down payment and closing costs on a 7%-interest mortgage. Without PMI the maximum price you can afford is $44,600, but with PMI covering the lender's risk you now can buy a $62,300 house. PMI has afforded you 39% more house.

PMI costs vary from insurer to insurer, and from plan to plan. Example: A highly leveraged adjustable-rate mortgage requires the borrower to pay a higher premium to get coverage. Buyers with a 5% down payment can expect to pay a premium of approximately 0.78% times the annual loan amount, $92.67 monthly for a $150,000 purchase price. But, the PMI premium would drop to 0.52% times the annual amount, $58.50 monthly if a 10% down payment was made.

PMI fees can be paid in many ways depending on the company used:

• Borrowers can choose to pay the 1-years premium at closing, and then an annual renewal premium is collected monthly as part of the house payment.
• Borrowers can choose to pay no premium at closing, but add on a slightly higher premium monthly to the principal, interest, tax, and insurance payment.
• Borrowers who want to sidestep paying PMI at closing but don't want to increase their monthly house payment can finance a lump-sum PMI premium into their loan. Should the PMI be canceled before the loan term expires through refinancing, paying off the loan, or removal by the loan provider, the borrower may obtain the rebate of the premium.

• 100% Financing & No Down Payment Loans
• No Private Mortgage (PMI)
• No Penalties for Prepaying the Loan
• Competitive Interest Rates
• Qualification is Easier than a Conventional Loan
• Sellers Pay Some of the Closing Costs
• Can be combined with additional down payment assistance to reduce closing costs

Typically the buyer covers the cost of PMI, but the lender is the PMI company's client and shops for insurance on behalf of the borrower. Lenders usually deal with only a few PMI companies because they know the guidelines for those insurers. This can be a problem when one of the lender's prime companies turns down a loan because the borrower doesn’t fit its risk parameters. A lender might follow suit and deny the loan application without consulting a second PMI company which could leave all parties in an undesirable position. The lender has the difficult task of being fair to the borrower while shopping for the most effective way to lessen liability.

The Homeowners Protection Act of 1998 established rules for automatic termination and borrower cancellation of Private Mortgage Insurance (PMI) for home mortgages. These protections apply to certain home mortgages signed on or after July 29, 1999 for the home purchase, initial construction, or refinance of a single-family home. It does not apply to government-insured FHA or VA loans, or to loans with lender-paid PMI.

With certain exceptions (home mortgages signed on or after July 29, 1999) your PMI must be terminated automatically when 22% of the equity of your home is reached, based on the original property value and if your mortgage payments are current. It can also be canceled at your request with certain exceptions, when you reach 20% equity, again based on the original property value, if your mortgage payments are current.

Exceptions:

1. If your loan is "high risk"
2. You have not been current on your payments within the year prior to termination time or cancellation
3. If you have other liens on your property

Ask your lender or mortgage servicer for information about these requirements. If you signed your mortgage before July 29, 1999 you can request to have the PMI canceled once you exceed 20% home equity. But, federal law does not require your lender or mortgage servicer to cancel the insurance.

 

Amerin Guaranty Corporation 303 East Wacker Drive, Suite 900 Chicago, IL 60601 Tel: 800-257-7643 Fax: 312-540-0564	PMI Mortgage Insurance Company 601 Mongomery Street San Francisco, CA 94111 Tel: 800-288-1970 Fax: 415-291-6175
Commonwealth Mortgage Assurance Company 1601 Market Street Philadelphia, PA 19103-2197 Tel: 800-523-1988 Fax: 215-496-0346	Republic Mortgage Insurance Co. P.O. Box 2514 Winston-Salem, NC 27102-9954 Tel: 800-999-7642 Fax: 919-661-0049
G.E. Capital Mortgage Insurance Corporation P.O. Box 177800 Raleigh, NC 27615 Tel: 800-334-9270 Fax: 919-846-4260	Triad Guaranty Insurance Corp. P.O. Box 25623 Winston-Salem, NC 27114 Tel: 800-451-4872 Fax: 919-723-0343
Mortgage Guaranty Insurance Corporation P.O. Box 488 Milwaukee, WI 53201 Tel: 800-558-9900 Fax: 414-347-6802	United Guaranty Corporation P.O. Box 21567 Greensboro, NC 27420 Tel: 800-334-8966 Fax: 919-230-1946