Wednesday, September 5, 2018 / by Rich Hernandez
3 things buyers need to know about PMI
When covering loan options with buyers, you should determine how much they plan to put down. If it’s going to be less than 20 percent, you should have a discussion with them about PMI.
Here are three things you should mention:
1. PMI can be cancelled
Typically, PMI can be cancelled once the principal balance of the mortgage falls to 80 percent of a home’s original value. Other cancellation criteria include good payment history and being current on payments at the time the cancellation request is made.
2. PMI and MIP are different
There are different types of mortgage insurance. PMI is associated with conventional loans. A mortgage insurance premium (MIP) is what borrowers pay toward FHA-insured loans.
The most important thing for buyers to remember is that the rules governing PMI and MIP differ. While borrowers can cancel PMI, refinancing is often the only way to eliminate MIP.
3. PMI protects the lender, not the borrower
Some buyers believe that PMI protects them from foreclosure; this isn’t the case. PMI protects the lender, not the borrower, against loss. Although borrowers are the ones paying premiums, the only real benefit PMI offers to them is the ability to purchase a home without making a 20 percent down payment.
Refer buyers to a knowledgeable loan officer
While agents should understand what loan options are available to buyers, staying on top of the changing rules regarding mortgages just isn’t realistic. By referring buyers to a knowledgeable, competent loan officer, you can safely assume that they’ll get the guidance they need to make an informed decision when applying for a loan.