Home Loan Workbook

THE BASICS OF PRIVATE MORTGAGE INSURANCE (PMI) Not everyone has $50,000 in cash lying around to put down for a $250,000 home. Private mortgage insurance can be your solution if making a 20 percent down payment on a home is out of your reach. Private Mortgage Insurance (PMI) is a policy provided by mortgage insurers to protect lenders against a loss if a borrower defaults on their loan. Most lenders - like our St. Louis mortgage company - require PMI for loans with loan-to-value (LTV) percentages in excess of 80 percent. Therefore, a borrower has the opportunity to make a smaller down payment of as low as 3 percent instead of 20 percent. PMI charges vary depending on the size of the down payment and the loan, but they typically amount to about a half of one percent of the loan. What USA Mortgage Suggests for You Our team of experienced mortgage bankers recommend that you keep track of your payments on the principal of the mortgage. When you reach the point where the loan-to-value ratio hits 80 percent, PMI payments can be discontinued. Because of the Homeowners Protection Act of 1998, we are required, as lenders, to tell borrowers at closing time how many years and additional months it will take for them to reach the 80 percent level. Exceptions to Private Mortgage Insurance By law, lenders can require PMI all the way down to a loan-to-value ratio of 50 percent for those individuals who are considered to be high-risk borrowers. Riskier borrowers are individuals who have reduced documentation loans, in which they provide less proof of income during the approval process. A risky borrower may also be someone with a spotty credit history and higher debt-to-income ratios. In addition, some Federal Housing Administration (FHA) loans require PMI payment throughout the entire lifespan of the loan. USA Mortgage is in the business of turning hopefuls into homeowners. A 20 percent down payment is no easy commitment, so there are options to bring your closer to stepping into a new home.

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