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PRIVATE MORTGAGE INSURANCE (PMI)
What is private mortgage insurance?
Mortgage insurance is a type of guaranty that helps protect lenders against the costs of foreclosure. This insurance protection is provided by private mortgage insurance companies. It enables lenders to accept lower down payments than they would normally accept. In effect, mortgage insurance provides what the equity of a higher down payment would provide to cover a lender’s losses in the unfortunate event of foreclosure. Therefore, without mortgage insurance, you might not be able to buy a home without a 20% down payment.
If I have a good credit rating and I can meet the required monthly mortgage payments, am I obligated to have private mortgage insurance?
Even when you have an excellent credit record and the capability to meet mortgage payments, most lenders require private mortgage insurance as a matter of policy for any loan with a small down payment. Mortgage insurance allows lenders to grant loans that they otherwise would not consider. In most cases, when you make less then a 20% down payment, the lender will require PMI (private mortgage insurance).
Is private mortgage insurance different from other kinds of insurance associated with mortgages?
Private mortgage insurance protects the lender in the event of borrower
default and subsequent foreclosure on the home. FHA and VA
insurance also protect the lender against borrower default under
a government program rather than through the private enterprise
system. Credit life insurance (something called mortgage
insurance) is life insurance coverage that pays off the mortgage
in the event a borrower dies, becomes disabled, or incurs loss
of health, according to the terms of the insurance policy. Fire,
liability, and theft insurance cover the homeowner and lender
from losses, according to the terms and conditions of their
respective insurance policies |
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