Mortgage Consultants in NJ: What is Private Mortgage Insurance?

There are so many particulars that consume you when you’re shopping for a home. Is it a nice neighborhood? Is there a good school system? How many bathrooms are there? When the search starts to narrow, your dream home chosen (or at least a home that “will do”), your exhausted attention switches direction towards mortgage options – a wholly complex, foreign world that can be so disorienting that you even consider a “Little Annie Decoder Ring” to help you dissect the details. This is the real beginning, when the real stress commences, as large amounts of numbers swirl around in the air, discussed so casually, as if you’re talking about cents, not dollars. Enter quality mortgage consultants in NJ who will help to assuage your anxiety and clarify the murky facts. But one aspect of the mortgage process that is perhaps not talked about enough, can be easily glossed over, and really upset or confuse a home buyer is the concept of ‘private mortgage insurance (PMI).’

Mortgage Consultants in NJ: What You Need to Know About PMI

PMI is generally a requirement for home buyers who have less that 20 percent of the value of the home they are buying to put down towards the loan. The purpose of PMI is to protect the lender in the case that you default (can’t pay the mortgage) on your mortgage loan. However, just because you pay this sum of money each month to protect the lender, it does not mean you can just walk away from your or home or stop making mortgage payments without penalties. Again, the amount and full rationale for the PMI will be reviewed in detail by reputable mortgage consultants in NJ.

Mortgage Consultants in NJ: How Exactly Does PMI Protect the Lender?

So PMI only kicks in when you (the prospective homeowner) do not have the 20% down payment for the home. For example, you're buying a house that is valued at $200,000 dollars, then to avoid paying PMI, you would need to put down $40,000 dollars. Now let’s say you only have $20,000 to put down initially, which equates to 10% and at some point you default on your mortgage payments, the insurance company will pay the lender the difference between the your down payment ($10,000) and the required 20% required at the onset of the loan. Therefore, the lender will get $10,000 from the insurance company. There are additional calculations that can be made on an individual basis based on different percentages down or no money down that your mortgage consultants in NJ can review in detail.

Mortgage Consultants in NJ: Is PMI Fair?

Again, good mortgage consultants in NJ will alleviate any fears that you have about this being fair or even illegal. The obvious question they will answer is: why does the lender get all the financial protection and you have to pay for it? But as noted above, mortgages are large sums of money, so lenders/banks are taking a lot of risk to loan that kind of money to you. Prior to the prevalence of PMI, lenders/banks wouldn’t think twice about giving a mortgage if the person didn't have 20% down. But now with the presence of PMI, lender/banks are willing to give loans with as little as 0% down because they know they can recoup their losses from the insurance company. So while PMI adds money to an already hefty mortgage payment, it allows you the opportunity to purchase a home without the obstacle of saving up thousands of dollars for a down payment.