10 Gotcha’s When Getting a Mortgage Part 8 >

8.  Private Mortgage Insurance (PMI) charges.  Financing the up front premium into the loan amount. 

·      If a person is unable to put a 20% down payment on his/her new home, she/he will be charged PMI (an insurance premium to protect the lender in case one defaults on the loan).  Every borrower should find out if he/she could add these premiums into their financing, if they are charge PMI (Romero). 

·      Because of the rise in the cost of living over the past quarter century, we're earning less and saving very little to nothing at all. So purchasing a home is harder than ever before. Because of this, most couples are forced to wait years longer than their parents did to purchase their first home. In today's market there are more options to help couples buy a home with 0 to 20% down. This shortens the wait time for some couples considerably. Because of this, in most areas of the country the popularity of these loans has risen. In 1994, almost 1-out-of-2 home buyers obtained a home loan with low-down payment home loan, many using PMI to assure the loan company payment in case of their inability to pay.

·      A home loan with PMI stands a better chance with Lender because it insures they will get paid. With PMI the Lender is protected if the borrower defaults on the loan, they will still receive payment in full. In turn, PMI may help the borrower obtain the home in which they want to purchase, because the greater probability of default on a loan the less you have vested in the home. So, to guaranty lender will see their return, and protect Lender form borrower default, PMI is required. Without PMI, lenders will require a down-payment above 20%.

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