PMI: Private Mortgage Insurance

Private Mortgage Insurance (PMI) is an insurance policy the borrower pays for which protects the lender in case of foreclosure. You’ve probably heard about PMI before, since most loans over 80% usually require PMI. It has actually gotten harder to get PMI with recent FICO changes. Many of the insurance companies are not writing policies unless you have a 620 credit score.

 

So, you want to make sure that if your loan requires PMI, your lender orders the policy upfront and you have no trouble getting it. Most people don’t realize that the money they pay in monthly mortgage payments is collected by the lender and paid to another institution (most people think the lender keeps this money). 

 

There are loans now available called “lender paid MI” where the policy is paid for in advance, and the lender collects the premium from the rate. To be eligible for these loans, buyers must have a higher FICO score (a 680 score). It might cost two points to get the LPMI, but the monthly payments are a lot lower. 

 

The LPMI is a great loan product, but it’s not for everybody. It’s especially good in today’s market – with the rates being so low and everything being equal, you can get a rate of 7% for 100% financing with no mortgage insurance.