| f the biggest loans that most people in the United | | | | Until 2007, private mortgage insurance premiums were |
| States take on during their lifetime is a mortgage for | | | | not deductible on the home buyer's income taxes. It |
| their house. Our system generally calls for a down | | | | was for this reason that many people who did not |
| payment of some type followed by a loan to cover | | | | have the full 20% down payment would consider a |
| the remainder of the house cost. Private mortgage | | | | second mortgage. The second mortgage would |
| insurance is usually required by the lender when the | | | | provide the money for 10 or 15% of the down |
| buyer puts down less than 20% of the sale price of | | | | payment, depending on the need of the borrower. |
| the home he or she may wish to buy. | | | | Now, however, a borrower may deduct premiums for |
| This insurance protects the lender in the event that the | | | | the private mortgage insurance for up to three years |
| buyer is not able to finish paying off the loan. Once the | | | | on their tax returns. In many cases, this deduction has |
| mortgage is paid down to at least 80% of the home's | | | | made it more cost effective to purchase the insurance |
| value, or possibly when the home's value appreciates, | | | | than to obtain a second mortgage. |
| the Private Mortgage insurance is usually no longer | | | | According to the Homeowners Protection Act passed |
| needed. | | | | in 1998, most private mortgage insurance policies |
| The sales price of the home is determined by the | | | | automatically cancel when the 78% loan-to-value is |
| market value of the home, the area in which the home | | | | reached. Defaulting on the payments or making late |
| is located, and the size of the home. These dynamics | | | | payments will, however, allow the lender to continue to |
| are factored in when the home's value is set by the | | | | require this insurance. This requires less of the home |
| appraiser. | | | | buyer because of the automatic percentage built into |
| There are several different ways that the Private | | | | the policy. The savvy home buyer will, of course, want |
| Mortgage Insurance might be paid. The first option | | | | to mark this date on a calendar and check to make |
| would be for the insurance policy to be paid as | | | | sure this is taken care of promptly. |
| escrow is closed on the purchase of the house. This | | | | Legally, the lender can hold the borrower liable for the |
| insurance would be for a fixed amount of time. This | | | | premium on the private mortgage insurance policy until |
| time frame is determined by when the 80% value will | | | | the value of the home reaches 78% of the |
| be reached according to the mortgage amortization | | | | loan-to-ratio value. Once that obligation has been met, |
| schedule. | | | | the lender will probably require that the home be |
| A second option might be that the private mortgage | | | | appraised again to make sure the insurance is no |
| insurance policy payment amount would be combined | | | | longer needed. |
| with the mortgage payment itself, much like property | | | | However, if the home buyer's credit score is good and |
| taxes are included with some mortgage payments. | | | | all the payments are current, there is another option. |
| Again, this payment would stop at the time when the | | | | He or she may be able to petition to have the private |
| 80% value is reached and would no longer be part of | | | | mortgage insurance removed when 20% of the |
| the mortgage payment. | | | | home's value has been paid by the borrower. |
| A third option exists, as well, and many times the buyer | | | | Exceptions to these two allowances for termination of |
| may not even know that mortgage insurance exists in | | | | the private mortgage insurance may not be allowed on |
| their mortgage. Some of the higher interest rates might | | | | loans that are considered to be high risk by the lender. |
| specify that no mortgage insurance is needed. in | | | | Another situation which may influence whether the |
| actuality, however, the insurance payment has been | | | | lender allows for termination of the policy may be the |
| added to the interest rate quoted on the prepared | | | | presence of other liens on the land and/or the home. |
| mortgage payment. | | | | Many considerations go into the buying of a home. If |
| The private mortgage insurance premium is | | | | the home buyer has less than 20% down payment, he |
| determined by several factors. One important issue is | | | | or she needs to be prepared for this to be one of |
| whether or not the home is investment property or | | | | those considerations. Just as property taxes and |
| whether it is a primary or secondary residence for the | | | | home owner's insurance are part of the home owner's |
| borrower. Another item that would be considered is | | | | future, so private mortgage insurance is part of the |
| the loan amount against the current appraisal value of | | | | home buyer's assortment of tasks to be dealt with as |
| the home. Of primary importance would be the | | | | they look into the details of their new purchase. |
| borrower's credit score. | | | | |