Hawaii VA Loans

There have been a lot of changes in the mortgage industry lately.   Some of the most recent changes have been in the Mortgage Insurance (MI) industry.  Private mortgage insurance is a type of insurance used by lenders to help limit losses in the event of loss or foreclosure of a loan. Lenders typically require MI for loans in which there is less than a 20% down payment (for purchases) or equity (for refinances).  The mortgage insurance company will absorb losses up to a certain percentage of the value of the loan.

For example, if someone wants to buy a house and has a 10% down payment, a lender will provide a loan of up to 90% of the value of the home.  Because there is less than a 20% down payment, the lender will require MI to cover losses equivalent to 25% of the loan amount.   This insurance for the lender is a fee that borrowers pay monthly with their loan payment.

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When it comes to insurance (auto, health, homeowners, etc.) they all have the same thing in common: it is never fun having to pay the premiums, but always a relief when the insurance company foots the bill. But what if you have to write the check to pay the premiums, yet you are not the one being insured?

This is the case with Private Mortgage Insurance (PMI). PMI is insurance the lender requires their borrowers to pay when they don’t put a minimum of a 20% down payment on a home purchase. Not to be confused with homeowners’ insurance, PMI does not insure the homeowner, instead – mortgage insurance insures the lender in the event the borrower goes into default and the lender needs to foreclose on the property. In this circumstance, PMI insures the lender (up to a certain percentage of the loan) to offset loses incurred during the foreclosure process.

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