So, What Is A PMI?

Buying a home is a realization of a life long dream and for many a symbol of “making it” in life. Since owning property is held in such high esteem many buyers tend to rush into the purchase. With this being the case the home buying industry has developed private mortgage insurance.

The private mortgage insurance, or PMI, serves the purpose of protecting the lender should the buyer default on the mortgage payment. For those buyers looking for a mortgage yet lacking at least 20% of the down payment, a private mortgage insurance is almost always required. This allows buyers with down payments less then that 20% amount to go ahead and buy the home.

Many new buyers depend on mortgages to help buy that home they so desperately desire. Mortgages are loans against the value of the home. The buyer must repay the mortgage in monthly instalments or risk foreclosure. Foreclosure is the process where the lender whether it is a bank or lending agency, takes the ownership of the home in order to recover the lost costs of the loan.

Mortgages were a favourite way of buying homes before the housing market collapse. Starting with the default of numerous sub prime mortgages and rippling into other areas of the economy, the home market is largely to blame for the current state of the American and the world economy; many experts believe.

Consumers with bad credit wishing to attain a mortgage may find it harder then ever to get a loan due to the collapse of the market. Sub prime mortgages were the main type of mortgages used by those with less the perfect credit to buy homes. All lines of credit have become much harder to acquire and so focus on the private mortgage insurance has been doubled. It used to be that some lenders would waive the PMI to close a deal but more and more are now requiring it in order to protect their interest.

Unlike other fees and requirements used in the mortgage market, the private mortgage insurance is not effected by credit scores and ratings, at least not by much. The problem comes that the private mortgage insurance is yet another monthly payment that the household must endure. The PMI goes directly to the lender and not to the loan itself which is unfortunate for those buyers who may already be strapped by the mortgage payments.

For those looking to buy a home with less then 20% of the down payment needs to factor in the additional cost of the private mortgage insurance. The amount of the PMI payment differs, of course but can be as much as $85 a month but is often times much larger.

The most obvious advice to those wanting to buy a home is to wait until a large amount of the down payment is saved up. This may take more time but will save the households a large amount of cash.

For new home owners the private mortgage insurance on top of the mortgage payments, utilities, household bills, and other unexpected expenses can be just too much and could result in default payments.

Before buying that new home wait it out and do the math.