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Define Private Mortgage Insurance (PMI) in Real Estate
Private Mortgage Insurance (PMI):
"Private Mortgage Insurance (PMI)" is a type of insurance that a borrower can purchase when they take out a mortgage loan. It helps protect the lender in case the borrower is unable to make their mortgage payments.
Example:
For example, let's say that Jane wants to buy a house but she doesn't have enough money for a 20% down payment. Instead, she puts down 10% and takes out a mortgage for the remaining 90% of the purchase price. Because she didn't put down 20%, the lender requires her to purchase PMI to protect the lender in case Jane defaults on her mortgage payments.
"A Deep Dive for Real Estate Agents and Appraisers"
Here are a few additional things you should know about Private Mortgage Insurance (PMI):
- PMI is typically required when a borrower puts down less than 20% of the purchase price of a home. This is because lenders consider these borrowers to be higher-risk and want to protect themselves against potential losses.
- PMI is usually paid as a monthly premium that is added to the borrower's mortgage payment. The amount of the premium depends on the size of the down payment and the amount of the mortgage loan.
- PMI is not permanent and can be canceled once the borrower has built up enough equity in the home. This usually happens when the loan balance falls below 80% of the home's original appraised value.
- Some types of mortgage loans, such as FHA loans, have their own form of mortgage insurance that is required regardless of the size of the down payment.
Overall, PMI is an important consideration for borrowers who are putting down less than 20% on a home purchase. Understanding how PMI works and how to cancel it when it is no longer needed can help borrowers save money over the life of their mortgage loan.
"Wit & Whimsy with the Dumb Ox: Unlocking Knowledge with Rhyme:"
In the land of mortgages, where houses are bought,
There's a type of insurance that protects a lot.
It's called Private Mortgage Insurance, oh what a name,
And it helps the lender in case of payment game.
If Jane wants to buy a house, but has only a little,
She can put down 10%, and the rest is like a riddle.
A mortgage loan for the remaining 90%,
But PMI is required, oh can't you see!
It's insurance that Jane must pay,
To protect the lender in case she can't repay.
If she defaults on her mortgage, oh what a mess,
The PMI helps the lender, that's their best guess.
So remember, my friend, when it comes to mortgage loans,
PMI helps protect lenders from payment unknowns.
It's insurance that the borrower must pay,
To ensure the lender won't be led astray.