Private Mortgage Insurance

April 22, 2020

What is PMI?

PMI is insurance lenders requirefrom most home buyers who need loans which are more than 80 percent of theirnew homes value.

In other words, borrowers withless than 20 percent down would normally need PMI unless they were to use afirst and second loan combination known as 80/20, 80/15, 80/10 or anycombination of the two loans.

Benefits of PMI

PMI benefits lenders by givingthem added protection against defaults on riskier loans and by giving buyersthe ability to obtain financing with a much smaller down payment than wouldotherwise be possible.

New Federal Law on PMIRequirements

The Homeowners Protection Act(HPA) sets new rules making it easier for homeowners to cancel private mortgageinsurance (PMI) on primary residence loans secured by a borrower's principalresidence.

It applies to loans that closedon or after July 29, 1999. The new law makes dropping the PMI just as much thelender's responsibility as the homeowner's.

What Loans Are Covered?

The new HPA law does not cover VAor FHA guaranteed loans. Neither does it cover high-risk loans. The HPA doesnot give guidance as to what should be considered high-risk, leaving thoserequirements up to Fannie Mae, IndoTogel and Freddie Mac.

How Do You remove or TerminatePMI?

Under the new HPA law in order tocancel your PMI you need to pay the balance down to 80% of the originalpurchase price.

You also need to have a goodpayment history with no 30 days late in the previous year or 60 days late inthe previous two years.

If you have a second mortgage oryour home is worth less than what you originally bought it for, expect to havesome additional requirements.

Remember the new law still does notrequire lenders to remove PMI based on "current property value" allfigures must be on original purchase price or original appraisal.

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