Facts About Buying Your Louisville Home
If you are like most people, when you decide to buy a new home, you will make a down payment and get a mortgage loan on the balance. If that amount falls short of 20% of the homes value, and you are going to get a conventional loan, be aware that you will most likely have to pay for 'private mortgage insurance' (PMI). Most lenders go by the old rule that the more a person puts into the purchase then the lower is the risk.
Private mortgage insurance (PMI) is a policy that protects the lender against financial loss if you should default on your loan. Lenders always will seek to minimize their risk by asking for a substantial down payment, usually 20% or more, or will want insurance that will guarantee them the principal amount if they have to foreclose.
The lender benefits from the PMI insurance but the borrower has to pay for it. The premiums will vary. Factors that affect the cost of the insurance include the type of mortgage, loan amount, and the amount of your down payment. Generally, you can expect PMI to be about 0.5 percent of the loan amount.
Is there a way to avoid having to pay for PMI? Some lenders will waive the PMI requirements if you pay a higher interest rate on your mortgage loan. In this option, they actually build the PMI cost into the loan and make the premium payments for you. There are other options available that vary from lender to lender and it's best to discuss this with your lender when deciding on what type of PMI loan you want.
If you have had your loan for awhile and been paying the PMI, the PMI portion will eventually end. When you have at least 20 percent equity in your home (home value minus loan balance), you can ask your lender to have PMI cancelled. Most lenders will require a good payment history, be up to date and current with the payments, and have no liens against the home. Some mortgage loans will have a minimum wait time before PMI can be eliminated. The lender will require a new appraisal of the home and the homeowner will have to pay for that.
PMI is not tax deductible. You pay the fee and never see any benefit from it.
It is wise to keep abreast of your homes value at all times and then notify your lender when your loan to value has gone below 80%.