How to Avoid Paying Private Mortgage Insurance
November 2, 2016 | Margaret Snow

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If you’re purchasing a home with less than 20% down on the mortgage, private mortgage insurance will likely be included. Here’s what you need to know about PMI.

Today I’m joined by Patrick Parke from Home Harbor Financial to discuss PMI and answer a few common questions about what it is and how you can avoid it.
 
What is private mortgage insurance? PMI is a policy taken out by the lender, paid by the borrower, which protects the lender from default on the mortgage. Which loans would have to include mortgage insurance? FHA, VA, USDA and conforming loans like Fannie Mae and Freddie Mac would have to include mortgage insurance. Are there any benefits to having mortgage insurance? Pat says that PMI mostly benefits the lender.

"PMI USUALLY FALLS OFF AT 80% LOAN-TO-VALUE."

How can borrowers avoid PMI? Buyers that put 20% down or more on their home purchase or combine two mortgages can avoid paying for private mortgage insurance. Those second mortgages can include either a home equity line or a fixed rate second mortgage. In addition, buyers can also look toward the lender-paid mortgage insurance, which comes with a slightly higher interest rate. Buyers with a credit score over 760 may see as little as a .125% rate adjustment while those with a credit score lower than 660 will more than likely not want to look at lender-paid mortgage insurance because it’s so expensive.
 
When can buyers stop paying for borrower-paid mortgage insurance? Although a lot of loans are different, Pat says that with conforming loans, PMI will typically fall off at 78% to 80% loan-to-value. At this point, the buyer will have to get an appraisal on the property to get rid of the PMI. Pat advises his clients to check the value of their properties after two years, and then attempt to get the PMI removed. This can vary depending on whether a buyer has a 15-year or 30-year mortgage.
 
If you have any other questions about PMI or lending, give Pat a call at 904-377-9555 or send him an email at pparke@homeharbor.us.


If you’re considering buying or selling a home in Northeast Florida, don’t hesitate to reach out to me as well. I’d be happy to help you!

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