Lots of acronyms get thrown around when you’re talking to a lender. Everything from DTI’s and LTV’s to PITI and UFMIP. PMI (AKA, MIP) is just one of an alphabet soup of terms that you should know.

What is PMI?

It stands for Private Mortgage Insurance. You’ll also sometimes hear of it as MIP or mortgage insurance premium. They’re basically the same thing. It’s insurance that insures that you, the buyer, will actually pay back the loan. It pays out if you don’t.

Who pays for private mortgage insurance?

Short answer: you do (of course!). The long answer is that there may be a portion added onto your mortgage when it’s first taken out. It goes that way with FHA loans. That portion is referred to as UFMIP (up-front mortgage insurance premium). There will also be a part that is added onto your payment each month.

Who benefits from the MIP?

Downer alert: Sadly, not you. Having insurance in the name sounds like you might get something out of it if tragedy strikes and you can’t pay your mortgage. In this case, you’re paying for insurance that helps out the mortgage company if they end up having to foreclose on the property. It won’t in any way keep them from taking your house away.

Is there any way to get out of paying a mortgage insurance premium?

Yes! Buy a house using conventional financing and put at least 20% down. Unfortunately, most first time buyers don’t have the cash for that but if you’re selling another house and plan to plunk down the proceeds you get from that, you might be able to swing it.  If you can’t do that at the time of purchase, you can make extra payments toward the principle and once it’s paid down to a 78- 80% LTV (more acronyms! this one means loan to value ratio) you can request that the PMI be cancelled. If values are going up in your area or you’ve made significant improvements and you think your house has appreciated to the point that your mortgage balance is 80% or less of your home’s new value, you can talk to your mortgage holder and request a new appraisal (which you’ll pay for). The bad news for FHA buyers is that this doesn’t apply. Some recent rule changes at FHA mean that you’re stuck paying the MIP for the life of the loan, up to 30 years.

So when you’re thinking about monthly payments and what you can afford to spend on your new house, be sure to include not just the principle, interest, taxes and homeowner’s insurance (that’s the PITI I mentioned up there at the top) but also the PMI. If you have any questions about this or any part of buying a house in Chattanooga, contact me and I’ll be happy to help!

The post PMI – Private Mortgage Insurance appeared first on Chattanooga Real Estate - More than you ever wanted to know about buying a selling real estate in Chattanooga.