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Web sites help with private mortgage insurance

How much do you know about private mortgage insurance (PMI)? If it's not much, the Mortgage Insurance Companies of America (MICA) hopes to help with two Web sites about PMI — PrivateMI.com for consumers and micanews.com for policymakers and the media.

The average homebuyer can buy a house 10 years sooner by using PMI and making a
5 percent downpayment

"Coming up with a down payment remains the greatest challenge for many families to overcome in buying a home," said Suzanne C. Hutchinson, MICA executive vice president. "Many prospective home buyers may not be aware that they can become homeowners years sooner with a low down payment and private mortgage insurance."

For many first time home buyers, the inability to make a 20 percent down payment means they need to find a financing alternative to a traditional mortgage. One popular alternative is cancelable private mortgage insurance (PrivateMI), which enables families to buy a home years sooner with as little as a 3 percent down payment, or less for qualified borrowers.

A survey released in July, 2004 by Mortgage Insurance Companies of America (MICA) reported that 152,842 borrowers used private mortgage insurance (PrivateMI) to buy or refinance a home in May. The dollar volume of primary insurance written on newly originated 1-to-4 family conventional mortgage loans totaled $19,259.4 million in May, a 1.2% decrease from the previous month's $19,498.4 million. Traditional primary insurance totaled $16,839.1 million and bulk primary insurance totaled $2,420.3 million in May.

PMI protects lenders against loss if a homebuyer defaults on a mortgage. Without PMI, lenders typically require homebuyers to make a downpayment of at least 20 percent.

Homeowners can cancel a PMI policy — and save the monthly payments — after they have built up enough equity in their property.

The basics of PMI are explained at PrivateMI.com. The lender arranges for PMI coverage on a mortgage, the association explains. So, when shopping for a loan, ask lenders about PMI. The qualifying process for PMI-covered loans is similar to that for regular mortgages.

Prices for PMI premiums vary, based on the size of a downpayment, type of mortgage, and amount of insurance coverage, with premiums rolled into the monthly mortgage payment.

At PrivateMI.com, PMI-covered loans are compared with piggyback loans. Also known as the 80/10/10, the piggyback allows a homebuyer to purchase a house with less than a 20 percent downpayment and without PMI by stacking a high-rate small second mortgage on top of a lower-rate first mortgage.

Also, PrivateMI.com lists the differences between PMI and the Federal Housing Administration (FHA) mortgage insurance, a federal government program backed by taxpayers. For instance, PMI can be canceled. For most borrowers, the FHA mortgage insurance must be paid for the life of the loan. PMI covers the top 20 percent to 30 percent of the mortgage, while FHA insures 100 percent.

Designed for would-be and existing homeowners, PrivateMI.com offers five interactive tools to calculate costs using PMI. The tools allow users to determine how much sooner they can buy a home using PMI, assess how much more house they can buy, compare a PMI-covered loan with a piggyback loan, figure out when their PMI can be canceled, and how to grow wealth using PMI.

PrivateMI.com also includes a glossary with a slew of terms and acronyms that would-be homeowners will encounter when house hunting.

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