Private Mortgage Insurance (PMI) is a policy that protects the lender or the lending institution if you fail to repay the loan. PMI covers a part or all of the remaining mortgage, the borrower pays for the policy while the lender benefits. Like other insurance policies, private mortgage insurance comes with an annual premium, and sometimes it also has an upfront premium too. If you want to dive in deep about knowing PMIs, then read our blog ‘Everything To Know About A Private Mortgage Insurance ‘.
What is Private Mortgage Insurance?
Private Mortgage Insurance assures the lender that the loan will be paid, having such a policy helps borrowers to qualify for a loan that they eventually wouldn’t have qualified for. This insurance is mandatory if you pay less than a 20% down payment on a purchase.
In some cases, lenders may allow you to make a down payment of less than 20% without PMI although these loans may have steeper interest rates.
1. How Does Private Mortgage Insurance Work?
Similar to other insurance policies, you pay premiums to cover any unforeseen damages due to unfortunate situations. In such instances, the insurance company is liable for paying the outstanding loan if you find yourself incapable of doing it. Lenders contemplate that it is more likely to happen if you have less of an ownership stake in the property.
2. Private Mortgage Insurance vs. Mortgage Protection Insurance
Private mortgage insurance (PMI) is different from Mortgage Protection Insurance (MPI). Mortgage Protection Insurance won’t pay off the whole outstanding balance of your loan if you default. Although it may still make some payments if you fall victim to uncertain situations like job loss, accidents that led to disability, or any kind of serious illness.
Here are some more insights into both PMI and MPI to help you understand better –
3. Private Mortgage Insurance
- A PMI insures against a complete default on the loan
- It protects the lender in unforeseen circumstances
- It pays in the event of foreclosure
4. Mortgage Protection Insurance
- An MPI only covers a chunk or some missed mortgage payments
- An MPI protects the borrower in catastrophic events
- May pay in the event of the borrower’s death
The Pros and Cons of Private Mortgage Insurance
To begin with, there are both advantages and disadvantages of PMIs. Although, it can make it easier for you to qualify for a loan as it lowers the risk you present to the lender. A PMI gives you more buying power as it lowers the down payment that you are required to make every time. It can also act as an aid when you’re short of funds.
A primary drawback of PMI is that it increases the monthly mortgage payments and sometimes the closing costs too. Furthermore, PMI payments are no longer tax deductible. Although, you may be able to write off premiums on a loan taken out before 2017 (based on your income and the terms of the mortgage). Additionally, it has one more downside, mortgage insurance is only meant to protect the lender in case you default. It absolutely offers no protection to you (the borrower) if you lag behind in repayments.
1. Pros of PMI
- It enables you to qualify for a mortgage loan
- Allows you to make a smaller down payment
2. Cons of PMI
- It may increase the monthly payments
- Can increase the closing costs
- It provides no protection to the borrower
- The premiums are not tax-deductible
Is There A Need to Pay for Private Mortgage Insurance?
A PMI typically costs around 0.5% -1% of your loan value on an annual basis although, it is subject to vary. The lender will look at your PMI premiums in detail on your initial loan estimate inclusively of the final closing disclosure form. Here, you choose to pay the premium upfront while closing or as a part of your monthly payments.
Now that you know everything about private mortgage insurance you may pick and choose wisely. If you think you’re running out of time and can’t make outstanding mortgage payments. It’s probably time to sell your house fast for cash. Elite Properties can help you sell your house as we are a cash buying company and we assure to make the home selling process easy for you. For further information call us at 718-977-5462 and we will guide you through the selling process.
In order to assess property taxes, localities usually have a home appraisal. When you sell your house or refinance it, the bank is liable to order an independent appraisal. This is done to assure it is lending against the property’s true value. The satisfaction of a home appraisal relies on if you are a seller, a prospective buyer, or a taxpayer. If you’re someone who is unhappy with their home appraisal, scroll down to read our blog ‘This Is How You Can Challenge A Low Home Appraisal’.
A thing to keep in mind is that not all homes are up for appraisals if you are a cash buyer you can opt-out. Although, this only happens when the price inclines on the steeper end of the market and the inventory is low. However, if you are planning to finance your new home appraisal is mandatory. On the other hand, according to most housing experts, if you are paying for your house in cash, it is always better to know its worth.
The Multiple Kind of Appraisals
To understand better make sure you are aware of the multiple types of appraisals.
- Online Appraisal
Many companies nowadays have started performing electronic appraisals to cut costs. Here, they do internet research on comps (comparable homes) to fix the value of your home based on comps and other factors inclusively. Although, in an online appraisal there is a high chance that information on newly renovated rooms or items can be skipped. If something like this occurs, it might impact the assessment of your house as these things are not visible online.
- County Appraisals
Drive-by appraisals are another kind of appraisal that usually takes place for counties. In drive-by appraisals, a person may take the current picture of their home and comparables, again without the need to visit the house.
- Traditional Appraisal
Lastly, the traditional appraisal occurs when the appraiser visits the house and gathers information. The appraiser further asks questions regarding improvements. Post which he/she will make a comparison to other similar houses in the area or town. Furthermore, a traditional appraisal may cost several dollars and takes place when a home is sold to the new owner.
Here’s How To Challenge A County Appraisal
The reason for conducting a county appraisal is to assess property taxes based on the current value of your home. If you aren’t thinking of moving any time soon, and when the assessment comes in lower than your expectations. A thing to consider is that your property tax bill will also be less. Additionally, if you want to sell your house in the future you can call the county auditor. There are many localities that allow you to appeal the assessment by providing proof of upgrades or improvements.
Furthermore, while evaluating the property a real estate agent researches the comps in the area. This means using the county’s assessed value may not hold as much importance.
Here’s How You Can Challenge Other Appraisals
If you’re buying a house and the appraisal comes in too low, it will result in declining your mortgage loan approval from the lender. Although, you still have multiple options to try before giving up.
First off, as the purchaser of the appraisal, you are entitled to view the appraisal. Make sure to work closely with the seller’s real estate agent and ensure all major upgrades are taken care off while the assessment. Additionally, ask the seller’s real estate agent to talk to the appraiser about the comps they examined while finalizing the selling price.
You can also request the appraiser to re-examine their results based on comparables. If there are a handful of recent sales in the neighborhood. The appraiser may have found similar homes in other neighborhoods that weren’t comparable as initially thought. If you can provide authentic information to the appraiser there is a possibility they might reconsider the assessment.
Lastly, remember to always be polite while challenging an appraisal. The appraiser may not want to admit that they’re wrong while putting in a place of defense. Make sure you challenge the assessment with absolute respect and talk it through.
There might be times when a low appraisal may work in your favor regardless of your status. Remember, an appraisal relies on multiple factors starting from the home’s condition, its market value, and comparables.
Furthermore, if you have strict time constraints and are planning to sell your house fast you can get in touch with Elite Properties. We buy houses for cash and make an offer based on the fair market value. Also, we offer fast closings so that you can work according to your timeline. Call us today at 718-977-5462 to know more.