How to Get Private Mortgage Insurance

Private mortgage insurance (PMI) is generally required for borrowers who make a down payment of less than 20 percent. With PMI, you can still be viewed as an attractive mortgage risk to lenders, even with a smaller down payment.

Steps:

1. Identify the home you are interested in purchasing.
2. Calculate the standard 20 percent down payment that most lenders require. To do this, multiply the house price by 0.2.
3. Define how much you can afford to put down on the home. If your amount exceeds the 20 percent calculated in Step 2, the lender will likely require you to obtain Private Mortgage Insurance (PMI).
4. Wait for your lender to arrange the necessary paperwork for the PMI. You will sign the documents when you close on the house.
5. Ask the lender how much of the PMI insurance premium will be required at closing. The amount can vary based on your credit score, the home you are buying, and the size of your down payment.

Tips:

• Private mortgage insurers work directly with lenders, not borrowers. Most lenders work with one or several insurers.
• Private mortgage insurance costs depend on your down payment and credit history.
• PMI typically adds several hundred dollars per month to the cost of your loan, so this includes the price in your figures if you feel you will have less than 20 percent down.
• The insurer will generally require several months’ premiums or more at closing.
• As of summer 1999, lenders must send annual notices of their cancellation rights or ways to eliminate the monthly PMI payment.
• Suppose your mortgage is subsequently purchased by Fannie Mae or Freddie Mac (two federally affiliated agencies that buy mortgages). In that case, you have a good chance of dropping PMI if a new appraisal shows you have 20 percent equity and have paid your mortgage on time for 12 months.

Warnings

• Getting private mortgage insurance (PMI) might be challenging if this is your second mortgage.
• Don’t mix up PMI with mortgage life insurance. PMI protects the lender if you don’t repay the loan but doesn’t provide any financial help if you pass away.

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