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The Downside of Private Mortgage Insurance By Mauricio Navarro

Now, some of you may look at “private mortgage insurance”. However, when it comes to private mortgage insurance (PMI), that thought is only partially correct; as a homebuyer with a non-conventional mortgage, you will need to pay private mortgage insurance but the PMI but the insurance is not for your benefit; it’s for the benefit (and protection) of your mortgage lender. PMI does have its merits but if you can avoid paying PMI, try. Here are the three top reasons why:

DOWNER #1: No Benefit For The Family: If something happens and you’re not able to make mortgage payments, your family gets nothing from the private mortgage insurance company; no grace period and no payout of monies paid into the PMI. What’s more is that, if your family is unable to keep up with the mortgage (and PMI) payments, you / they will lose the home.

DOWNER #2: It’s Like Being Tethered To A Ball & Chain:
PMI isn’t something that you can just stop making payments on when you don’t want the service anymore; if you have to pay PMI, then it’s a requirement of your mortgage. Additionally, once you’ve satisfied the PMI-related terms of your mortgage, you’ll still have to cut through your lender’s PMI company’s red tape in order to cancel the PMI. Translation: You can’t de-shackle yourself from PMI until your lender / PMI company releases you.

DOWNER #3: The Opportunity Cost Is High:
A home is an investment but the money you spend paying PMI is just that, a payment. For comparison’s sake, presume that a mortgage you were interested in required a $1,500 annual PMI payment. Well, that payment would simply be money spent once it was paid.

What is Private Mortgage Insurance?

Private mortgage insurance works a bit differently than other forms of insurance like health or life insurance. Investopedia.com defines private mortgage insurance, which is sometimes abbreviated as PMI, as “A policy provided by private mortgage insurers to protect lenders against loss if a borrower defaults.” Yes, you read that correctly; private mortgage insurance is insurance coverage for your mortgage loan provider on which you pay the premium. The second major difference between private mortgage insurance and many other forms of insurance is that PMI is not optional. Though many aspects of your mortgage loan may be negotiable, PMI typically is not; it’s usually a condition on unconventional loans.

Generally, PMI is added on to the cost of your loan. Scenario:
Home price – $220,000
Down payment – $22,000 (which is 10%)
Fixed interest rate – 6.75%
Loan term – 30 years

With health insurance, life insurance, car insurance, etc., you can cancel anytime you wish. That’s not the case with private mortgage insurance. With PMI, you must pay the premium until you have paid at least paid 20% of the mortgage principal back; some lenders who make loans to “high-risk” buyers may require PMI until up to 50% of the principal has been paid. Learn more here for Home Mortgage Rates, Best Mortgage Rates, 97% Of American Homeowners Overpay Their Lender In Mortgage, A Personal Mortgage Experience, Subprime Mortgage Rates, Adjustable Rate Mortgage.

Why do some people get their home loan mortgages approved in a breeze while others struggle through with hiccups? What are the differentiating factors between one application and another? What do lenders look at when they evaluate you?

In reality, getting your home mortgage approved depends on how your background matches the list of criteria set forth by the lender. Although these rules that they have are not always entirely hard and fast, the loan application officer does not stray too far away the guidelines he or she has been entrusted with. Needless to say, applicants should at best present themselves as creditworthy creditors and have the adequate documented records as proof of this.

Believe or not, lenders have a scoring system for aspects of your background that they are evaluating. The following are areas in which you will be scrutinized on:

1. Employment History

You must have been in employment for not less than 2 consecutive years within the same industry. This shows that you have the capability to be sustained in a permanent position, and do not hop from one job to another. Lenders look for stability and consistency as best they can, and your employment history is a good basis for them to evaluate your capability to generate income to finance your mortgage.

2. Credit History

The next indicator of your credit-worthiness is your short-term debt, a.k.a. your credit card bills. It’s ok to have some debt on your credit card, but you must show a history of on-time payments. Apart from that, too much debt on credit cards with credit lines fully utilized shows the possible inability to pay for debt. Therefore, at least six months before applying for a loan, it would be best to clean up your short term debt as much as possible.

3. Outstanding Liabilities

The size of your income dictates the amount of liability you can support. As a rule of thumb, lenders stipulate that a person’s total monthly payments for liabilities should not exceed 42% of his or her monthly earnings. With this, total liabilities include credit card debt, car loans, student loans, existing mortgages or child support collectively. This means that in order to qualify for your home loan mortgage, you need to reduce your monthly repayments on liabilities to the point which is acceptable by the lender.

4. Cash and Asset Reserves

Another aspect to show that you can afford your home loan mortgage is to provide proof to the lender on the amount of cash and liquid assets that you possess. The minimum reserves that you have must be sufficient to pay at least 2 months of monthly repayments for mortgage payments. Some lenders even go to the extent of requiring 6 months worth of reserves in order to qualify.

5. Existing Housing Repayments

Finally, if you already have existing housing rental payments, there should not be any late repayments for these within the past 12 months. This again shows your priorities as a responsible tenant and is adequate proof to the lender that you potentially will be a responsible borrower as well.

Some applicants who may lack supporting documents for their home loan mortgage applications should compensate by providing documents that will help to prove themselves to be responsible pay masters. These could be payments receipts of utility bills, phone bills or even car insurance, which are useful documents to be used to prove that you are indeed creditworthy. Dont Miss this best collection : mortgage refinance rates, home equity rates, 2nd Mortgage Rate, Mortgage Rates Comparison, Mortgage Rates 30 year fixed, Home Loan Mortgage Rate, and A Personal Mortgage Experience. by Chris Edison