| Private mortgage insurance or PMI as it is called is insurance that actually protects the lender not you the borrower. Private mortgage insurance is required on all Fannie Mae loans where the loan to value is over eighty percent. Loan to value ratio or LTV is calculated by taking the amount of the loan and then dividing it by the market value of the home. For example, if a property is worth $100,000 and you had a mortgage of $90,000 the LTV would be ninety percent which means you would need private mortgage insurance. If you happen to default on the mortgage the lender is paid the difference between eighty percent and your loan to value. On the example above the lender would be paid on ten percent by the private mortgage insurance company.
The monthly fee for private mortgage insurance varies depending upon how large your mortgage is. The larger the mortgage is, the higher the premium will be. The mortgage insurance premium is larger the higher up you go on the LTV. It will be higher at 95 percent than at 90 percent because the risk is greater for the mortgage insurance company. The monthly fee for private mortgage insurance can be anywhere from twenty dollars per month to over three hundred dollars.
If you are purchasing a new home the lender will either go by the appraised value or the purchase price, whichever is lower. This means that if you pick up a bargain at say $200,000 and the property appraises at $250,000 the lender will use the lower figure which is $200,000 to calculate if private mortgage insurance is needed. If the mortgage meltdown continues the minimum score requirement will be raised. So if you need credit repair get it done now. If your score is less than a 650 you should get credit repair because your interest rate is going to be higher on every type of credit you may take out.
Back to Articles...
| 
