When Private Mortgage Insurance is required
When you obtain a mortgage, you might be required to secure private mortgage insurance (PMI). The purpose of this insurance is to compensate your lender if you default on your mortgage payments. That way, your lender will not lose a lot of money if you cannot live up to your end of the agreement.
Usually, borrowers who are required to get PMI are deemed risky. In other words, your lender feels that it is somewhat uncertain that you will make your mortgage payments. One reason that borrowers are deemed risky is because of a flubbed credit history; another is if the down payment is not adequate.
Of course, as with other types of insurance, you will be required to pay a monthly premium for PMI. This amount is usually over and above your monthly mortgage payment, although in some cases these costs are lumped together.
For this reason, it is wise to get pre-approval before you start looking around for a house. That way, you�ll know in advance if you will be required to purchase PMI. Gaining pre-approval will help you budget around the extra expense incurred by the monthly insurance premium.
While the added expense of PMI may be hard to swallow, it helps many borrowers qualify for mortgages. Moreover, it is not permanent. If you are prompt with your mortgage payments, you will probably be able to drop PMI after you have built twenty percent equity.
If you are able to drop the insurance, it is a good idea to put the money you would have paid for it toward prepayment on your mortgage. If you're looking for Auto Insurance Companies, CLICKinsure.com is the premier Auto insurance and Home insurance provider on the Internet, with instant rates and one-call coverage from the largest and best known insurance companies in the nation.