To Have or Not to Have, That Is The PMI Question!

Mortgages

Private Mortgage Insurance a.k.a. PMI is a popular buzzword in both the mortgage and real estate world. What some considers as a “dirty” word is often a pre-judged opinion of an overheard rumor concerning someone paying it, and how it affected him or her.

The Basics

In a nutshell, if you do not have 20% to put down toward the purchase of your St Johns County property, PMI is a good thing in order to obtain your loan. PMI is required by the lender to counter their risk in case you fail to pay, and it enables you to buy the home with as little as 3-5% down. Government insured loans such as Federal Housing Administration (FHA) loans also carry their own form of PMI, referred to as Mortgage Protection Insurance a.k.a. MPI. This insurance is provided federally to the lender to protect them in case of default. Getting a loan via the government gives more flexibility in calculating household income and payment ratios needed to get you approved for your loan. PMI cost is then passed along to the homeowner being included in the monthly payment. In most cases, PMI will drop off after five years or when the remaining balance on the loan is 78% of the value of the property -whichever is longer.

Avoiding PMI

The only way to avoid PMI is by way of separating your mortgages into a 1^st and 2^nd mortgage. Some do not care for 2^nd mortgages generated for this purpose because they feel it is an inconvenience if the two mortgage holders are different lenders with different payment addresses. Pro’s are that they will eliminate PMI and usually bring your monthly overall payment down. Con’s are that if you wish to get a home equity loan based on the equity accumulated, you generally would have to re-finance to do so.

Dropping PMI

Should you build 20% equity quickly in your your St Johns County property purchase, be sure to contact your lender to discuss dropping your PMI or contact a mortgage official to explore re-finance options. In case of a government loan, qualifications must be met, but are worth looking into financially.

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