Private Mortgage Insurance
Private mortgage insurance (PMI) guarantees home mortgage loans that are conventional, that is, non-government loans. This private business loan program is equivalent to the FHA and the VA loan programs.
The PMI company insures a percentage of the consumer's loan to reduce the lender's risk; this percentage is paid to the lender if the consumer does not pay and the lender forecloses the loan.
Lenders decide if they need and want private mortgage insurance. If they so decide, it becomes a requirement of the loan. PMI companies charge a fee to insure a mortgage loan; the VA insures a loan at no cost to a veteran buyer (if the veteran has a service connected disability, otherwise the veteran pays a fee for the loan guarantee); the FHA charges a fee to guarantee the loan.
On June 11, 2012, the FHA deployed a two-tiered private mortgage insurance schedule. New FHA mortgages and refinances of an existing FHA mortgage which was endorsed by the FHA on, or after, June 1, 2009 are subject to an upfront mortgage insurance premium (UFMIP) of 1.75% and an annual mortgage insurance premium (MIP) of up to 1.50%. Upfront and annual mortgage insurance premiums for FHA loans which replace existing FHA which were endorsed by the FHA prior to June 1, 2009 via the FHA's streamline refinance program pay just 0.01% and 0.55%, respectively.
FHA-insured homeowners using a 15-year loan term and with more than 22% home equity are exempt from annual mortgage insurance payments.
Read more about this topic: FHA Insured Loan
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