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"Private mortgage insurance, also called PMI, is a type of mortgage insurance you might be required to pay for if you have a conventional loan. Like other kinds of mortgage insurance, PMI protects the lender—not you—if you stop making payments on your loan. 

PMI is arranged by the lender and provided by private insurance companies. PMI is usually required when you have a conventional loan and make a down payment of less than 20 percent of the home’s purchase price. If you’re refinancing with a conventional loan and your equity is less than 20 percent of the value of your home, PMI is also usually required." -Consumer Financial Protection Bureau

But one secret most home buyers DON'T know is that you can pre-pay that PMI during closing and save yourself hundreds of dollars each month over the early life of your conventional loan. That's right, you can PREPAY it. And, if the seller is paying some of your closing costs, your lender may be able to apply any leftover seller paids to assist in the paying down of your PMI.

From Amy Prater, NBH Bank/Bank Midwest, one of our preferred lenders at Urban KC Living and KC Condo Source:

"Everyone hates the idea of mortgage insurance, right.  What if I can show you a smarter way to pay for mortgage insurance. I have put together two scenarios on the same property that will take some of the stings out of having to pay that insurance.

On a $160,000 purchase with 5% down ( $8000) your monthly mortgage insurance is $45.89 per month.  That mortgage insurance will automatically drop off at payment 114.  That is a cost of $5231.46 for that insurance.  

You also have the option of paying that mortgage insurance premium at closing like it is a regular fee.  The cost of that single pay premium is $2615 for the exact same offer.  So this is saving you $2616 in premiums. More than $2,600 a year in PMI savings, could equal multiple extra mortgage payment each year which would mean your loans would also pay off quicker!   

When should you consider paying the premium up front?  When you know that this is a long-term home, meaning over 10 years.   This might also be a smart idea to do if you are trying to maximize your buying power.  By eliminating $45.89 per month in your mortgage payment that would give you an additional $10,000 in buying power.  So you go from being able to qualify for a $160,000 house to a $170,000 house and your realtor can show you just want an additional $10,000 in buying power can do.  I think it just might surprise you."

For more creative ways to maximize your buying power, give our team a call or drop us a quick email today: 816.699.0084 OR Team@UrbanKCLiving.com.

Posted by AJ Gentry on November 29th, 2017 11:33 AM



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