With the fluctuating economy, many young families have to save more, and wait longer, to own a home. However, a low down payment home mortgage offers an opportunity to shorten the wait. This is where private mortgage insurance (PMI) comes into play.
Most lenders require 20 percent of a home's purchase price as a down payment. If a 20 percent down payment is not made, a lender usually requires the home buyer to purchase private mortgage insurance (PMI). PMI plays an important role in the mortgage industry by protecting a lender against loss if a borrower defaults on a loan and by enabling borrowers with less cash to have greater access to homeownership. With this type of insurance, it is possible for you to buy a home with as little as a 3 to 5 percent down payment. This means that you can buy a home sooner without waiting years to accumulate a large down payment.
Do not confuse private mortgage insurance with mortgage life insurance. Private mortgage insurance puts people in homes; mortgage life insurance pays all or a portion of your mortgage in the event of your death.
If you find that your lender does require PMI, some important questions to ask are:
- Ask about the lender's requirements for a down payment and what you need to do to verify that funds for your down payment are available.
- Ask if there are any special programs your lender is offering.
- Ask what the total cost of the insurance will be.
- Ask how much your monthly payment will be with the PMI premium.
- Ask how long you will be required to carry PMI.
If you must purchase PMI to receive your loan, it is important to ask your lender about the information above. Learn as much as you can before making any final decisions regarding your home purchase