What Types of Loans May Be Covered by Private Mortgage Insurance?

What Types of Loans May Be Covered by Private Mortgage Insurance?

Mortgage lenders need either a 20 percent down payment or private mortgage insurance. PMI covers rsquo & the creditor if the mortgage is foreclosed. Mortgage lenders expect to market homes for approximately 80 percent of their value. If the mortgage loan exceeds this amount and the loan has PMI coverage, the PMI company pays for the rest of the loan balance and the expenses needed to foreclose on and sell the home.

Purchase Loans

Mortgage lenders and PMI companies consider purchase loans the loan kind that is safest. The loan for an owner-occupied purchase provides the smallest amount of risk for the creditor. PMI is also readily available for home buyers to purchase a home or a holiday home down payment also. As of July 2010, PMI isn’t available from any PMI company to purchase investment property.

Rate and Term Refinance Loans

A refinance enables the homeowner to change loan term interest rates and loan form. A homeowner may benefit from a lower interest rate, change from an adjustable-rate mortgage into a fixed-rate mortgage, or switch from a 30-year loan into a 15-year loan. When the new loan amount is greater than 80% of their appraised value of the home, the mortgage lender will need PMI coverage. Coverage is only available for primary residences and second homes, as of July 2010.

Cash-Out Refinance Loans

Anytime the new loan results in cash to the homeowner of greater than $2,000, or two percent of the loan amount, mortgage lenders stipulate the loan as a cash-out refinance. Cash-out refinances are considered by mortgage lenders as the most risky of all loan programs. The interest rates generally are greater than purchase or rate and term loans, and the loan amounts are usually limited to a smaller percentage of the value of the home. As of July 2010, PMI is readily available for cash-out refinances–nevertheless, just on mortgages with loan amounts between 80 and 85% of the house 's assessed value.

See related