Chicago Mortgage Lenders Advice: Private Mortgage Insurance
This BLOG On Chicago Mortgage Lenders Advice: Private Mortgage Insurance Was UPDATED On June 25, 2017
Homeowners (or soon-to-be) may have wondered what private mortgage insurance is. Look no further than the advice of Chicago mortgage lenders like Gustan Cho.
- This blog is a great resource for educating homeowners on the facts and necessary knowledge for obtaining a home loan properly.
Chicago Mortgage Lenders: What’s the Dish On Private Mortgage Insurance?
So what exactly is private mortgage insurance and what purpose does it serve?
- If you are not a current homeowner, this advice is probably fresh news– but it’s pretty pivotal for potential home buyers to understand before borrowers arrange their mortgage loan.
What Is Private Mortgage Insurance?
Chicago mortgage lenders like myself, and lenders all across the United States, offer private mortgage insurance (PMI) to homeowners in their own interest and own security when they offer home loans to all types of individuals.
- Nearly all of the time, PMI is included in a borrower’s payment arrangement when they take on a mortgage loan agreement, except that payment is placed in a separate escrow account.
- Private mortgage insurance here protects Chicago mortgage lenders from the possible liability: let’s say a homeowner is unable to make payment for their annual lump sum; who is held liable?
More About Why Chicago Mortgage Lenders Agree Borrowers Need Private Mortgage Insurance
The sole reason and purpose of Chicago mortgage lenders including PMI in mortgage loan payments and agreements is to secure themselves from the unfortunate case that a homeowner cannot afford to pay the mortgage loan.
- To answer the question above, the result is that the lender will start foreclosure proceeding for homeowners who are delinquent on their home loan payments more than 90 days.
PMI Protects Lenders
Equally unfortunate is how common this really is.
- In our current economy, US cities see across the country see foreclosed homes populated communities.
- When a mortgage lender forecloses a home because the homeowner has defaulted on their payments, the house is then sold.
- Oftentimes, the monetary value that comes with the sale of the home doesn’t quite equate in the balance books.
- In the case of a deficit, the PMI is what pays the negative difference to the lender directly so that this awful situation is avoided.
Cost Of PMI
Home buyers may be asking themselves nevertheless why this must be their responsibility to pay Chicago mortgage lenders for their private mortgage insurance.
- That is a part of the responsibility of taking on loan – especially something as large as a mortgage loan.
- In the grand scheme of things, placing yourself in the shoes of the lender makes things much more clear. If the mortgage lender offers PMI and the homeowner declines the insurance, it’s natural and common practice that the lender would consequently be forced to raise the mortgage interest rate and therefore raise insurance for himself.
- What lender would go into such business without protecting himself in some way?
The Facts: Do I Absolutely Need Private Mortgage Insurance?
To put it simply, not for home buyers with 20% or more down payment.
- Homeowners with loan to values of higher than 80%, private mortgage insurance is required on Conventional Loans.
- FHA Loans require both upfront and annual mortgage insurance premium.
Requirement Of PMI
However, there are some thing that would help you avoid PMI.
- If you happen to make a down payment that is 20 percent or more of the total purchase price, then PMI would not be needed.
- In the case that a homeowner who has put that much money down, and does default on the mortgage, the lender would be able to make out even after the home is sold due to the 20% equity.