If you plan on buying a home in Albuquerque and want to go with a low down payment loan, perhaps you’ve already heard about Private Mortgage Insurance (PMI)? There are plenty of mortgage options that offer down payments under 20%. But if you plan on getting one of these types of loans, it’s a good idea to look into and educate yourself about Private Mortgage Insurance. How can Private Mortgage Insurance help you buy a home in Albuquerque?
Here’s how Freddie Mac defines PMI:
“An insurance policy that protects the lender if you are unable to pay your mortgage. It’s a monthly fee, rolled into your mortgage payment, that is required for all conforming, conventional loans that have down payments less than 20%.
Once you’ve built equity of 20% in your home, you can cancel your PMI and remove that expense from your mortgage payment.”
The simple explanation is that the buyer pays the monthly premiums for the PMI insurance policy, and the lender is the beneficiary. As Freddie Mac explains:
“The cost of PMI varies based on your loan-to-value ratio – the amount you owe on your mortgage compared to its value – and credit score, but you can expect to pay between $30 and $70 per month for every $100,000 borrowed.”
The larger the down payment, the lower your monthly housing cost will be, but as Freddie Mac says:
“It’s no doubt an added cost, but it’s enabling you to buy now and begin building equity versus waiting 5 to 10 years to build enough savings for a 20% down payment.”
There are several different ways to pay for PMI. Some lenders may offer more than one option, while other lenders do not. Before agreeing to a mortgage, ask lenders what choices they offer.
The most common way to pay for PMI is a monthly premium.
- This premium is added to your mortgage payment.
- The premium is shown on your Loan Estimate and Closing Disclosure on page 1, in the Projected Payments section. You will get a Loan Estimate when you apply for a mortgage, before you agree to this mortgage.
- The premium is also shown on your Closing Disclosure on page 1, in the Projected Payments section.
Sometimes you pay for PMI with a one-time up-front premium paid at closing.
- This premium is shown on your Loan Estimate and Closing Disclosure on page 2, in section B.
- If you make an up-front payment and then move or refinance, you may not be entitled to a refund of the premium.
Sometimes you pay with both up-front and monthly premiums.
- The up-front premium is shown on your Loan Estimate and Closing Disclosure on page 2, in section B.
- The premium added to your monthly mortgage payment is shown on your Loan Estimate and Closing Disclosure on page 1, in the Projected Payments section.
Lenders might offer you more than one option. Ask the loan officer to help you calculate the total costs over a few different timeframes that are realistic for you.
Are you planning to buy a home in Albuquerque and have questions about home loans and PMI? Please contact us today for more information.
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