Private Mortgage Insurance, or PMI, is an insurance policy that a lender will generally require on any mortgage in which the total amount borrowed is more than 80% of the value of the home to which the mortgage is secured. The insurance policy protects the lender in the event the borrower fails to make the payments due under the mortgage. The premium for the insurance policy is added to the borrower’s monthly payment along with the property taxes and home insurance payments. The PMI may be removed from the loan when the loan-to-value drops below 80%. However, this is not the case for an FHA mortgage. PMI on an FHA mortgage is known as MIP. If the FHA loan down payment was 10% or less, these payments are attached for as long as the loan remains unpaid.
Although this is an additional expense for home buyers, it is a way that a home buyer can purchase a home putting down less than 20% of the purchase price. It can also be a creative way of resolving an issue with the mortgage appraisal. Ultimately, the decision as to how much money to put down, and whether mortgage insurance is an acceptable cost is a business decision, rather than a legal one, but it is important to understand what the cost is to make the decision.
At Petriello Law, we have years of experience working with all types of mortgages, including those that involve Private Mortgage Insurance. Please reach out if you have any questions or concerns related to the purchase or sale of a home.