Brian Emerson

Senior Loan Officer

NMLS: 400942


Private Mortgage Insurance (PMI)

Bloomington Mortgage Lender - Private Mortgage Insurance

Private Mortgage Insurance (PMI)

Are you thinking about purchasing a home for the first time but are wondering if it is financially in your best interest to do so? Well, if this is you, then you have come to the right place! Owning a home will provide many benefits:

1. You build equity every month. Home values have historically increased on average about 5% every year.

2. The mortgage interest you pay is tax deductible; thus, the real interest rate you pay is quite a bit lower than the rate on your loan.

3. Historically, homes have increased in value. Look ahead 10 years. How much equity (profit) will you realize from renting? Exactly zero! Assume that your $200,000 home averaged just a 3% increase in value every year. After 10 years, your home will be worth $258,000. That’s $58,000 of equity which belongs to you.

4.The pride of ownership. When was the last time you bragged about the apartment you are renting? Ask your friends who are homeowners, whether it was a good decision or not. I suspect that they’ll say it was a wise decision.

If you would like to start reaping these benefits, then becoming a homeowner will be an excellent decision for you. But before you begin your application for a mortgage in Bloomington it is important to know a bit about mortgage insurance. To help you get started, Brian Emerson with Edge Home Finance has listed everything you need to know about private mortgage insurance (PMI).

Private Mortgage Insurance Explained

If you were a lender in the mortgage business; what would be the most important factor to you when considering who to lend your valuable money to? Suppose a borrower wanted to buy a home for $200,000. What would be preferable to you, the lender; the buyer who has 20% ($40,000) of the purchase price as their down payment, or someone who has 3% ($6,000) as their down payment? That’s easy to figure out.

As a rule, the mortgage industry likes to see a 20% down payment. That’s known as ‘skin in the game.’ A person with that much invested in the home is unlikely to default on their loan and lose all that equity they have contributed. The problem is that most people cannot save that 20% for their down payment or it takes years to save the funds. It’s a daunting task. PMI solves that problem!

Private Mortgage Insurance allows a borrower to invest as little as 1.50% of the purchase as their down payment. In fact; there are even programs that allow Zero Down Payment (Veterans & active duty military, USDA). PMI allows a qualified buyer to be able to buy their dream home many years sooner than trying to save the large down payment. Plus, PMI can be dropped once the equity in the home reaches 20% of the home value. All in all, a pretty good deal.

There are several ways to pay PMI. It can be added to your monthly payment. It can be paid for by the lender, and it can be paid as a lump sum. Your mortgage consultant can advise you which option may be the best for you.

The bottomed line is that PMI is a good thing and not something that you want to avoid. It’s just part of the home buying process./

Contact Us

For more information on private mortgage insurance or if you are interested in applying for a home loan, please contact your Bloomington mortgage lender, Brian Emerson with Edge Home Finance, at 612-203-5478.

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