If you are unable to make a down payment of at least 20 percent on your house, you will have to buy a Private Mortgage Insurance policy. It is generally known as PMI. If the borrower defaults on the loan repayment, it covers the mortgage lender. PMI is generally based on an amount that you need to pay per month of your mortgage loan. It varies, therefore, with your credit risk and your home loan number. Learn more at –What to Know About Private Mortgage Insurance
Commercial Mortgage Insurance Forms
It is possible to categorise private mortgage insurance plans into 2 categories – (1) Borrower-paid PMI and (2) Lender-paid PMI. Below, each of the 2 types is discussed.
1. Private mortgage insurance loan-paid: It is a form of Private Mortgage Insurance policy where the insurance premium is paid by the borrower. Generally, when he/she is unable to afford a 20 percent down payment on a home loan, a mortgage borrower wants to buy this policy. It is also referred to as Conventional Mortgage Insurance or Borrower-paid Private Mortgage Insurance (BPMI).
2. Lender-paid Private Mortgage Insurance: While the lender pays the premium price of PMI in Lender-paid PMI (LPMI), the borrower must actually bear the premium cost. Usually, with mortgage loan interest, lenders apply the premium rate. Generally, in the event of a high loan-to-value mortgage, a lender purchases this insurance policy.
Even if you can’t make a 20% down payment on your estate, you can stop PMI. Here are some of the ways you can stop buying a PMI scheme.
Go for a home loan of 80-10-10: In this loan scheme, you would have to take out 2 loans along with paying your home 10% down payment. 80% of the sale price is funded by the first mortgage and the remaining 10% is financed by the second mortgage . It is also regarded as a loan for piggybacks.
Pay more interest on your mortgage: By paying more interest on your mortgage loan, you can stop PMI. Most of the time, if the borrowers pay further interest on the home loan, the lenders waive PMI.
Borrow from your friends/family members: You can borrow from your friends or family members the required amount. It is advisable that you state in writing the terms and conditions of repayment in order to prevent any possible confusion.