3 thoughts on “February 10th, 2013”

  1. Aaron Howard says:

    PMI stands for private mortgage insurance, which protects investors from a loan default. Typically when buying a mortgage if your down payment is less than 20% of of the appraised value or sale price, PMI is either required or will give you a lower rate. PMI can be very expensive and sometimes the PMI comes with additional restrictions, like not allowing a refinance. Typically once you have PMI you can’t be rid of it until you’ve paid 20% of the principal or your house as appreciated such that you own 20% of the value.

    Some lenders don’t require any PMI, others will allow no PMI for a fee. Others will require PMI for until 20% of the principal is paid. Other options are an 80-10-10, 10% 10, 80% mortage and 10% at a higher interest rate, but the total cost of interest is less than PMI.

  2. Mike Finley says:

    Another good answer, Aaron. Let’s take a moment and caution the individual about stretching their finances to get into a home. Just because a bank offers you money doesn’t mean you should take it.

    While Aaron is right about all of the options available to possibly sidestep PMI, they usually involve more debt, a higher interest rate, and less flexibility for the buyer once they actually settle into the home. Do not complicate this issue. Develop good saving habits and put down 20% at closing to avoid PMI.

    This may delay your home purchase. Okay, that is not the worst thing in the world. PMI is not your friend, but neither is living in a home with no money in the bank and you’re trying to figure out how the mortgage is going to get paid at the end of the month. Go to the Buying a Home page and read my rules on buying a home. YOU will be the winner in this very important life event.

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