If you are making a down payment of less than 20 percent, you will most likely have to get Private Mortgage Insurance (or PMI). It ensures that the lender is guaranteed, by the mortgage insurer, 78 percent of the loan if you default. The insurance premium amount varies by the loan-to-value of the house and type of loan. But generally, the initial premium is 1-5% of the mortgage total, and possibly an additional monthly fee.
Not all lenders will require PMI, but those that follow the Fannie Mae and Freddie Mac guidelines will.
Some borrows opt to get a second mortgage to use for part of the down payment to avoid paying PMI. For example, you can get an 80/10/10 loan (80 percent loan, 10 percent second mortgage, and 10 percent down) or a variation thereof and sidestep PMI.
Government loan programs, such as FHA or VA loans, are backed by the government rather than PMI.
Other Useful Information and Links
- Qualifying for a Mortgage
- Choosing a Mortgage Lender
- Mortgage checklist
- What to ask a mortgage lender
- Mortgage Types & Rates
- Private Mortgage Insurance
- Mortgage Rates Fearbusters
- Buying Vs. Renting
- Understanding Mortgage Credit Scores
- Debt to Income Ratios (what are they)
- Loan to Value Ratio
- What does a Title Co. do?
- Credit Report Tips, Finding Mortgage with Bad Credit
- What is an FHA Loan?
- Bad Credit Mortgage Solutions, Fixing Credit
- Credit Scores and Reports, Mortgage Rates
- Down Payment How much do you need to save
- Mortgage Glossary