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Mortgage Loans with a Low Down Payment (3% to 5%) and Private Mortgage Insurance (PMI)

Private Mortgage Insurance (PMI)

PMI plays an important role in the mortgage industry by protecting a lender against loss if a borrower defaults on a loan and by enabling borrowers with less cash to have greater access to homeownership.

PMI makes it possible for the borrowers to buy a residential home with as little as 3 percent to 5 percent down payment. You can buy a home now without waiting years to save for a larger down payment. PMI also applies to homeowners who are interested in refinancing their existing loan with a loan amount over 80% of the current property value. The premium is an additional amount to be paid every month with the regular payment of principal, interest, taxes and insurance.

Why mortgage insurance (MI)?
All mortgages carry risk. If you finance over 80% of the property value, it is considered a higher risk than a loan equal to or less than 80%. For those borrowers who can't make the full 20% down payment, PMI is considered a valuable financing tool that offers benefits to the lender and borrower. Mortgage insurance reduces that risk by protecting the lender.

Borrower paid mortgage insurance premiums are now tax-deductible for qualified borrowers through 2010. Taxpayers should contact your tax preparer or CPA/accountant to review your qualifications under the Internal Revenue Code and laws concerning your personal financial affairs.

What is Private Mortgage Insurance payment?

The payment is an additional amount to be paid every month with the regular payment of principal, interest, taxes and insurance (PITI).

The PMI payment is derived from several factors of the loan.

Amortization schedule (term of the loan)

Primary, secondary, or investment residence

FICO Score

Loan balance

Total monthly debt/ gross montly income

Type of loan (rate & term, cash out, interest only)

The qualifications could change without notice. Consult Financial Access, LLC to receive an estimated payment and to review the qualifications. The minimum payment could be as low as $50 but could be over $200/month depending on the factors listed above.

Cancellation Of PMI

You have the right to request cancellation of PMI when you pay down your mortgage that equals 80% of the original purchase price or appraised value of your residential home at the time the loan was obtained, whichever was less. The mortgage payments are mostly applied to interest during the first few years of the loan. It can take 10 to 15 years to pay down a loan to reach 80% of the property value.. You can request to cancel PMI if the home prices in your area are rising quickly and you believe that your mortgage balance is 80% or less than your current property value. Another example is when your property value increases due to home improvements made to the home. In order to know the specific guidelines to qualify for a cancellation, you should contact your lender or servicer for details and required documentation to demonstrate the higher property value.

One of the qualifications to cancel PMI is that you must maintain a good payment history of never 30 days late within one year of your request or 60 days late within two years of your request. Your lender may require evidence that the value of the property has not declined below its original value and the property doesn't have a second mortgage such as a home equity loan. Contact your lender or servicer for clarification of the guidelines and how they will apply to you and your loan.

Automatic Termination

Mortgage lenders or servicers must automatically cancel PMI coverage on most loans once you pay down your mortgage to 78 percent of the original balance and meet their qualifications to terminate. Contact your lender or servicer for clarification of guidelines and how they will apply to you and your loan.