How to Get Private Mortgage Insurance

Private mortgage insurance, or PMI, is required of most borrowers who have less than a 20 percent down payment. With PMI, even with a small down payment, you can still be an attractive mortgage risk to the lender.

Steps:

1. Identify the home you are interested in.
2. Calculate the standard 20 percent down payment that most lenders require (multiply the price of the house times 0.2 to get the figure).
3. Determine how much money you can afford to put down on the home. If the amount you have is less than the 20 percent you calculated in Step 2, the lender will probably require you have PMI.
4. Wait for your lender to make arrangements for the paperwork to arrange PMI. Papers will be signed when you close on the house.
5. Ask the lender how much of the PMI insurance premium is required at closing. The amounts vary depending on your credit, the house you are buying and your down payment.

Tips:

• Private mortgage insurers work directly with lenders, not borrowers. Most lenders work with one or several insurers.
• The premiums for private mortgage insurance are calculated based on the amount of down payment and your credit history.
• PMI typically adds several hundred dollars per month to the cost of your loan, so be sure to this include the cost in your figures if you feel you will have less than 20 percent down.
• The insurer will generally require several months’ premiums or more at the time of closing.
• As of summer 1999, lenders are required to send out annual notices of their cancellation rights, or ways to eliminate the monthly PMI payment.
• If your mortgage is subsequently purchased by Fannie Mae or Freddie Mac (two federally affiliated agencies that buy mortgages), you have a good chance of dropping PMI if a new appraisal shows you have 20 percent equity and have paid your mortgage on time for 12 months.

Warnings:

• If this is a second mortgage, private mortgage insurance may be very hard to find.
• Don¿t confuse PMI with mortgage life insurance. PMI protects the lender in case you default on the mortgage, but offers no benefits in the event you die.