In Reply to: what is PMI?, rob [Profile/Gallery] , Fri, 21 Oct 2005 11:35:29

I'm not a banker. I base my opinions on my experience buying, selling, and refinancing real estate over the past 20 years. YMMV - your mileage may vary.

Private Mortgage Insurance is insurance you as a borrower pay for that "insures" that the lender will receive the amount they are owed if you stop paying the lender.

If I pay $5K of my savings, and borrow $95K from a bank to buy a house that appraises for $100K, I have $5K (5%) in equity in the house.

If I try to sell that house one month later, I could have to pay a significant percentage of the selling price to people involved (real estate agents are around 6% where I live, fees and other stuff can eat up a bunch more). If I sold for $100K, I may have selling costs of $10K. The bank expects $95K, adding the selling costs make the amount owed $105K. I need to come up with $5K just to sell the house and pay off the bank. Some people might consider it easier and less expensive just to give the house to the bank, rather than selling it for a loss. If I walk away, and the bank sells the house for $100K, the bank stands to have to pay the $5K.

This possibility makes banks nervous since they don't want to own a lot of houses. They like to lend money, but more importantly, they are in business to make money for the owners.

Typically, banks like you to have a 20% interest in the house, that way, it is more expensive for you to just walk away from the house, and if you do, the bank can afford to sell the house quickly since they now only need to sell it for what they loaned. If I had 20K of my money invested in the $100K house, I could sell for $100K, but I would realize only 10K of my investment back after the sale (100K selling - 80K bank loan - 10K selling cost) BUT I wouldn't need to write a big check, and walking away would cost me the $10K.

20% is often a big chunk of cash to find, so banks came up with PMI. PMI is insurance that guarantees the bank will get back its loan amount, even if the bank has to sell the house for a loss.

posted by 128.190.6...

• Way O/T getting rid of PMI (long), Rich, Thu, 20 Oct 2005 15:05:42
  • Re: Way O/T getting rid of PMI (long), Avanti, Fri, 21 Oct 2005 23:28:23
  • Thank you all., Rich, Fri, 21 Oct 2005 15:41:12
  • The ONLY way to get rid of PMI (and keep 4.5%), Jeff B, Fri, 21 Oct 2005 11:37:43
  • what is PMI?, rob , Fri, 21 Oct 2005 11:35:29
    • PMI - Private Mortgage Insurance (too long), Jeff B, Fri, 21 Oct 2005 12:07:59 <-- Viewing This Message
    • Re: what is PMI?, Geoff, Fri, 21 Oct 2005 11:47:17
  • Re: Way O/T getting rid of PMI (long), SWEDECAR , Fri, 21 Oct 2005 09:29:31
  • Re: Way O/T getting rid of PMI (long), Rafe, Fri, 21 Oct 2005 07:21:04
  • Get a Realtor to do a Market Analysis, JimN, Fri, 21 Oct 2005 06:55:25
    • I did that long ago and it worked, Schu, Fri, 21 Oct 2005 12:22:48
  • why not covert the amount over 80% to a 2nd mortgage, hte originalMJM, Fri, 21 Oct 2005 05:29:55
    • in his case, it might well cost him more that way., mdj, Sun, 23 Oct 2005 17:32:40
    • Bingo!, HD, Fri, 21 Oct 2005 10:28:03
  • Re: Way O/T getting rid of PMI (long), Rich T., Fri, 21 Oct 2005 05:15:10
  • LTV is the key, Geoff, Thu, 20 Oct 2005 15:46:21
    • can anyone afford to put down 20%?, Bob M, Thu, 20 Oct 2005 17:12:51
      • Re: can anyone afford to put down 20%?, Rafe, Fri, 21 Oct 2005 07:23:16
      • Just remember, Jim, Thu, 20 Oct 2005 21:01:12
        • That is true..., Bob M, Fri, 21 Oct 2005 05:55:46
      • Re: can anyone afford to put down 20%?, Geoff, Thu, 20 Oct 2005 18:27:54
        • Re: can anyone afford to put down 20%?, Rich, Thu, 20 Oct 2005 19:27:57
          • can anyone afford to put down 20%? Not me..., Chris M, Fri, 21 Oct 2005 05:24:59
          • Then maybe ask your loan officer, Geoff, Thu, 20 Oct 2005 20:13:31
            • Re: Then maybe ask your loan officer, Rich, Fri, 21 Oct 2005 06:08:33
              • Chearer insurer? Homeowners Protection Act?, Geoff, Fri, 21 Oct 2005 07:09:42
                • Chearer = "cheaper" -- no coffee yet, sorry. n/m, Geoff, Fri, 21 Oct 2005 07:10:27
  • Re: Way O/T getting rid of PMI (long), michael p, Thu, 20 Oct 2005 15:39:43
    • PMI Removal should be fairly straightforward, mdj, Sun, 23 Oct 2005 17:51:35
      • Re: PMI Removal should be fairly straightforward, Paul E, Sun, 23 Oct 2005 21:44:10

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