LESSON 8: PRIVATE MORTGAGE INSURANCE

One of the things many first-time home buyers and those without much savings have to deal with is private mortgage insurance, or PMI for short. If your down payment is less than 20 percent of the home's sale price, you typically must get PMI because you're considered a higher-risk borrower.

If your down payment is less than 20 percent, you'll most likely have to get private mortgage insurance.

The coverage protects lenders against default. If a borrower stops paying on a mortgage, the insurance company ensures that the lender will be paid in full. Mortgage companies pick insurance providers for their customers, but the borrowers have to foot the bill. Usually, they do so in monthly installments. But some lenders offer programs whereby the borrower pays the entire insurance premium in a lump sum at closing.

PMI charges vary depending on the size of the down payment and the loan, but they typically amount to about one-half of one percent of the loan.

Let's say you put down 10 percent, or $10,000, on a $100,000 house. The lender multiplies the 90 percent loan, or $90,000, by .005. The result is an annual PMI premium of $450, which is divided into 12 monthly payments of $37.50.

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TABLE OF CONTENTS

CHAPTER I
  Lesson 1
  Quiz

CHAPTER II
  Lesson 2
  Quiz

CHAPTER III
  Lesson 3
  Lesson 4
  Lesson 5
  Quiz

CHAPTER IV
  Lesson 6
  Lesson 7
  Quiz

CHAPTER V
  Lesson 8
  Lesson 9
  Quiz

CHAPTER VI
  Lesson 10
  Lesson 11
  Quiz

CHAPTER VII
  Lesson 12
  Lesson 13
  Lesson 14
  Quiz

CHAPTER VIII
  Lesson 15
  Lesson 16
  Lesson 17
  Lesson 18
  Quiz

CHAPTER IX
  Lesson 19
  Quiz

CHAPTER X
  Lesson 20
  Quiz

CHAPTER XI
  Lesson 21
  Quiz

CHAPTER XII
  Lesson 22
  Lesson 23
  Lesson 24
  Quiz

CHAPTER XIII
  Lesson 25
  Lesson 26
  Lesson 27
  Quiz

CHAPTER XIV
  Lesson 28
  Lesson 29
  Lesson 30
  Quiz

Definitions

Avoiding PMI

Private mortgage insurance (PMI) is not tax deductible