First, Private Mortgage Insurance (PMI) companies write policies to protect roughly the top 20% of a mortgage against default. This exact coverage depends heavily on your lender’s requirements, the loan-to-value ratio, and your specific loan program.

Consequently, if a default occurs, the lender will sell the property to liquidate the debt. Thereafter, the PMI company reimburses the lender for any remaining financial loss up to the policy value.

Yes, obtaining a policy can absolutely help you secure a larger home loan. To illustrate, imagine a family with a $42,000 annual gross income and $800 in monthly revolving debts. They also have $10,000 saved for a down payment on a 7% interest mortgage.

Without Private Mortgage Insurance (PMI), their maximum affordable home purchase price is only $44,600. However, because PMI covers the lender’s financial risk, that same family can now buy a $62,300 home. Consequently, this insurance affords you 39% more purchasing power.

Generally, Private Mortgage Insurance (PMI) costs vary from insurer to insurer and from plan to plan. For example, a highly leveraged, adjustable-rate mortgage requires a higher premium to secure coverage.

Typically, buyers with a 5% down payment can expect an annual premium of approximately 0.78%. This amount equals roughly $92.67 monthly for a $150,000 purchase price. Alternatively, the monthly premium drops to $58.50 if you make a 10% down payment. Therefore, a larger down payment significantly lowers your ongoing insurance costs.

Generally, borrowers can cover Private Mortgage Insurance (PMI) fees in several different ways depending on the specific company.

First, you can choose to pay the entire first year’s premium upfront at your closing. Thereafter, the lender collects an annual renewal premium monthly as a standard part of your regular house payment.

Alternatively, you can pay nothing at closing. Instead, you can add a slightly higher premium monthly directly to your principal, interest, tax, and insurance payment.

Finally, you can finance a lump-sum PMI premium directly into your loan. This option works best if you want to avoid upfront closing costs without increasing your recurring house payment. Consequently, if you cancel the policy early through refinancing or loan payoff, the insurer will issue a rebate for your remaining premium.

Typically the buyer covers the cost of PMI, but the lender is the PMI company’s client and shops for insurance on behalf of the borrower. Lenders usually deal with only a few PMI companies because they know the guidelines for those insurers. This can be a problem when one of the lender’s prime companies turns down a loan because the borrower doesn’t fit its risk parameters. A lender might follow suit and deny the loan application without consulting a second PMI company which could leave all parties in an undesirable position. The lender has the difficult task of being fair to the borrower while shopping for the most effective way to lessen liability.

Historically, the Private Mortgage Insurance (PMI) industry originated in the 1950s with its first large carrier, the Mortgage Guaranty Insurance Corporation (MGIC). At the time, lenders affectionately referred to the company as “magic.” This nickname arose because these early PMI methods seemed to “magically” assist in securing lender approval on otherwise unacceptable loan packages. Today, eight major PMI underwriting companies actively operate within the United States.

The Homeowners Protection Act of 1998 established rules for automatic termination and borrower cancellation of Private Mortgage Insurance (PMI) for home mortgages. These protections apply to certain home mortgages signed on or after July 29, 1999 for the home purchase, initial construction, or refinance of a single-family home. It does not apply to government-insured FHA or VA loans, or to loans with lender-paid PMI.

With certain exceptions (home mortgages signed on or after July 29, 1999) your PMI must be terminated automatically when 22% of the equity of your home is reached, based on the original property value and if your mortgage payments are current. It can also be canceled at your request with certain exceptions, when you reach 20% equity, again based on the original property value, if your mortgage payments are current.

Exceptions:

1. If your loan is “high risk”
2. You have not been current on your payments within the year prior to termination time or cancellation
3. If you have other liens on your property

Ask your lender or mortgage servicer for information about these requirements. If you signed your mortgage before July 29, 1999 you can request to have the PMI canceled once you exceed 20% home equity. But, federal law does not require your lender or mortgage servicer to cancel the insurance.

The Fair Credit Reporting Act (FCRA) is designed to help ensure that CRAs furnish correct and complete information to businesses to use when evaluating your application.

Your rights under the Fair Credit Reporting Act:

• You have the right to receive a copy of your credit report. The copy of your report must contain all of the information in your file at the time of your request.
• You have the right to know the name of anyone who received your credit report in the last year for most purposes or in the last two years for employment purposes.
• Any company that denies your application must supply the name and address of the CRA they contacted, provided the denial was based on information given by the CRA.
• You have the right to a free copy of your credit report when your application is denied because of information supplied by the CRA. Your request must be made within 60 days of receiving your denial notice.
• If you contest the completeness or accuracy of information in your report, you should file a dispute with the CRA and with the company that furnished the information to the CRA. Both the CRA and the furnisher of information are legally obligated to reinvestigate your dispute.
• You have a right to add a summary explanation to your credit report if your dispute is not resolved to your satisfaction.