When obtaining a home loan, you’ll receive two important documents from your lender: a loan estimate and a closing disclosure. On the surface, these documents are very similar, but they both serve different purposes. Here’s what you need to know about the differences between these two forms and what each means for you:
Private Mortgage Insurance for Mortgages in KC
Paying private mortgage insurance (PMI) for mortgages in KC is typically a necessary cost if you want to purchase a home without a significant down payment. Although PMI is an expense, it can give you stronger positioning and more buying power if you cannot make a sizeable down payment
What is Private Mortgage Insurance?
Lending money to borrowers is always a risk to the lender. Private mortgage insurance protects lenders if borrowers default on their mortgages in KC. PMI usually covers 30% or less of the home’s value in the case of a borrower defaulting on a loan. It removes the majority of the lender’s risk of lending mortgage money.
Who Needs PMI?
For conventional loans, your down payment needs to be 20% or more in order to avoid paying private mortgage insurance. However, your loan-to-value ratio is the primary factor that determines if you are going to need mortgage insurance, and when you can stop making insurance payments. Borrowers who have a loan-to-value ratio of 80% or more are required to purchase a private mortgage insurance policy as part of the mortgage process. Once you achieve a 78% loan-to-value ratio or less on a conventional loan, you will be given the option to cancel your PMI.
PMI vs. MI
PMI is only offered by private companies. However, private mortgage insurance does not apply to FHA or VA loans, which may have their own down payment and mortgage insurance (MI) requirements. For example, if you obtain a FHA loan, you will pay mortgage insurance even after your loan-to-value ratio has fallen below 80%.
Closing Your Loan
Obtaining private insurance for mortgages in KC requires two separate approvals, one from the lender and another from the insurance provider. If you are not approved by both, you will not be able to close your loan.