October 6, 2022 | Sexton Real Estate Group
If you’re a first-time homebuyer, you’ve probably heard of PMI insurance. PMI, or private mortgage insurance, is a type of insurance that’s typically required by lenders when borrowers make a down payment that’s less than 20% of the home’s purchase price. While PMI insurance can be beneficial, there are also a lot of misconceptions about it. Here are five of the most common myths about PMI insurance—debunked!
Myth#1: You Have To Pay For PMI Insurance For The Life Of Your Loan.
Did you know that you don’t have to pay for PMI insurance for the entire life of your loan? Many people believe that they do, but the truth is that once you’ve built up at least 20% equity in your home, you can contact your lender and request that they remove the requirement for PMI insurance. This can save you a significant amount of money each month, so it’s worth doing if you’re looking to reduce your monthly expenses. If you’re not sure how to go about this, simply give your lender a call and they’ll be happy to help.
Myth#2: You Need Perfect Credit To Qualify For A Loan With PMI Insurance.
Another common misconception about PMI insurance is that you need excellent credit to qualify for a loan that requires it. However, this isn’t necessarily true. While having good credit will certainly increase your chances of qualifying for a loan with favorable terms, you may still be able to qualify for a loan with less-than-perfect credit—you may just have to pay a higher interest rate. There are several factors that lenders take into account when considering a loan application, and credit score is just one of them. Your income, employment history, and financial assets are also important considerations.
Myth#3: You Can Cancel PMI Insurance Whenever You Want.
Many people believe that they can cancel their PMI insurance as soon as they reach 20% equity in their home. However, this isn’t always the case. Some lenders require borrowers to wait until they reach 22% equity before they allow them to cancel their PMI insurance, so it’s important to check with your lender to see what their policy is. In addition, some lenders may charge a fee for canceling PMI insurance, so it’s important to factor that into your decision. Ultimately, whether or not you cancel your PMI insurance is a personal decision, but it’s important to be aware of all the possible implications before you make a decision.
Myth#4: All Loans With Less Than 20% Down Require PMI Insurance.
Not all loans with less than a 20% down payment require borrowers to pay for PMI insurance. Some government-backed loans, such as FHA loans and VA loans, do not require borrowers to pay for PMI insurance even if they make a down payment that’s less than 20%. This can be significant savings for borrowers who can obtain one of these types of loans. In addition, some conventional lenders offer programs that allow borrowers to avoid paying PMI insurance even if they have a down payment that’s less than 20%.
Myth#5: You Can’t Avoid Paying For PMI Insurance If You Put Less Than 20% Down On Your Home.
If you’re not able to make a 20% down payment on your home but still don’t want to pay for PMI insurance, there are still options available to you. One option is taking out two mortgages—one for 80% of the purchase price and one for 10%, which would allow you to avoid having to pay for PMI altogether. Another option is taking out a piggyback loan, which is essentially two loans taken out at the same time—one for 80% of the purchase price and one for 10%. The interest rates on piggyback loans are typically higher than traditional mortgages, but they could still save you money in the long run by avoiding the extra cost of PMI.
As a first-time homebuyer, it’s important to educate yourself on all aspects of the home buying process—including private mortgage insurance (PMI) insurance! While there are some benefits to having PMI insurance, there are also some misconceptions about it that could end up costing you more money in the long run if you’re not careful! By knowing the facts about PMI insurance before making any decisions, you can be sure that you’re getting the best deal possible on your new home loan!
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