Private Mortgage Insurance For Houston First Time Home Buyers
Hello again, Our topic today is private mortgage insurance. What it is? Who benefit from it? How much does it cost? Who pays for it? Is it tax deductible? and how to get rid of it. Lets' begin. Private Mortgage Insurance (PMI) is a mandatory policy for all conventional loans, if down-payment is less than 20%. In truth, it is in place to protect the lender, not you, in the event the home owners default on their loan. Be careful if you plan on choosing the lender-paid mortgage insurance.
Because mortgage companies are in business to make money, if they offer to pay for your mortgage insurance, you may end up paying for it by way of higher interest rate.
Also, keep in mind, you may not be able to get lender-paid PMI canceled the same way you would if you paid out of pocket. With lender-paid PMI, you may need to refinance to get out of it. Remember, each lender is different. Here are a few more things you should know about PMI.
Private Mortgage Insurance does not protect you from foreclosure if you fall behind on your mortgage payments.
With less than 20% down payment, the lender is assuming a bigger risk, so your PMI payments may be higher to account for that risk.
Your credit history and credit score does play a major role in the cost of your PMI.
PMI Cost vary between 0.58 % to 1.86 % of the original amount of your loan.
Freddie Mac estimates most borrowers will pay $30 to $70 per month in PMI premiums for every $100,000 borrowed.
Your loan servicing company should terminate your PMI when loan balance reach 78% of the home's original value. Also, if an appraisal from the lender shows 20% home equity, you can request to have PMI removed.
The premium is usually paid by you, the borrower.
You do have multiple payment options- the first option is the single premium. You make one lump sum payment at closing, which covers the policy for the life of the mortgage. Lender-paid is the next option, there are no monthly payments, however, the lender may raise your mortgage rate to offset the additional risk. The third and final option is making monthly payments that is collected with your mortgage payments.
PMI - Is beneficial for first-time home buyers who does not have 20% down payment, to purchase their first home.
PMI - tax deduction is allowed only if the mortgage on which you pay PMI was taken out on or after Jan. 1, 2007. Also, as of Dec. 20, 2019, legislation signed into law, allow eligible homeowners the deduction for not only 2020 and future tax years, but also enables them to take it retroactively for the 2018 and 2019 tax years by filing amended returns. FYI: Adjusted gross income may cap at $109,000. Please discuss all tax related matters with your accountant or advisor.
Mortgage Insurance (MI) is required on FHA loan regardless of the down payment amount and it stays on for the life of the loan. It cannot be removed. Thank you so much for stopping by, and remember. Until next time...Diana.
Source: Consumer Financial Protection Bureau
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