What You Need to Know About Arizona Mortgage PMI

PMI (or Private Mortgage Insurance) is something every homeowner should at least know about, and if you're thinking about becoming a homeowner, it's even more vital. If you want to buy a home, or if you're looking to buy a new home, and you want to know the benefits and drawbacks of PMI, keep reading, because you could learn a thing or two.

Lenders require PMI when the down-payment on purchasing a new home is under 20% of the cost of the home. More accurately, a PMI is required when a buyer gets a loan which is greater in value than 80% of the home they are purchasing. The premium for PMI is often paid with the mortgage payments on a monthly basis; it usually ranges from $250 to $1200 a year. This depends on how much larger than 80% of your new home's value your loan is.

So what's so beneficial about this? Well, for lenders, this is good because it keeps them insured should you (the buyer) default on your mortgage or loan-and let's face it, bad things happen sometimes, and this helps the lender cover all his bases. But what about for you? What makes PMI so helpful to the buyer? The reduced down payment, of course! You can pay as little as 3% of your home's value in a down payment with PMI, usually ranging no higher than 5%-whereas without it, you would have to pay 20%.

All those percentage signs may not be making the difference very clear to you; perhaps this will help. Assume you're looking to buy a new home at the average price from 2006-about $305,900. Without PMI, your down payment is $61,180! But if you take PMI, then with a 5% down payment, that amount would be reduced radically to $15,295-a difference of $45,885! So if you take PMI, you get to buy a house sooner, because you don't spend all that time working your way up to a very large down payment. That means that not only is your lender happy, you get into a house sooner than you expected!

After you have paid your loan down to 80% of your house value (or less), you can cancel your PMI, which will save you money every month. Until 1999, that meant you had to track your payment progress and personally request confirmation-but the Homeowners Protection Act of 1998 requires that lenders inform you of when you may cancel your PMI. So any mortgages signed on or after July 29 in 1999 are set to go, protected by this act. Do remember, though, that if you have a government-insured FHA or VA loan, this act does not protect you-so be careful.

Now that you know a little more about PMI, you can be more successful as you look for a new home, whether you've bought one before or not. And remember, PMI gets you into a home sooner, and keeps your lender happy, so the only question is whether or not you'll be able to make the monthly payments-if you can, there's no downside! You should look into it, don't you think?