Private Mortgage Insurance (PMI) is a financial instrument that can be used by potential homebuyers. Basically, PMI acts as a safety net for lenders who want to process a loan for a borrower who does not have the 20 percent down payment that is usually required to qualify for a mortgage.

The primary lender (the 1^st Trust Deed) will only lend up to 80% of what the home is worth.  This puts the burden on the buyer to come up with 20% down.  Not every buyer is in the position to do that and there are many that prefer not to.  These buyers, based on their credit rating, can still do that because of PMI.  If the buyer is credit worthy PMI will insure the difference of the down payment and the lenders required 20% down.  This assures the mortgage company that if the buyer should default, the mortgage company is still only in it for the 80%.  Lending is all about risk.  PMI reduces the risk to the primary lender.

Normally the lender that you are dealing with will provide you with information on a PMI policy and will secure it for you. The initial cost of the PMI can either be added to your closing costs or tacked onto your monthly mortgage payments. This mortgage insurance can range in price from ½ to 1 percent of the loan amount each year. Borrowers will need to continue to make mortgage insurance payments until they have reached the 20 percent equity threshold.

The Homeowners Protection Act passed in 1998 contains a number of provisions to protect the interests of PMI borrowers. The main provision of the act calls for the automatic termination of the policy when the borrower reaches 22 percent equity in their home (based on the original property value). There are also provisions that require the lender to provide the borrower with information on termination and cancellation of the policy.

If you would like more information on a Private Mortgage Insurance policy and how it can help you get into your dream house today let me know and I can recommend a qualified lender. Frank Napoli, 702-378-3629 or Napoli Group Realtors.