home buyers face a number of challenges -- and a few confusing acronyms. From
terms like APR and ARM to FICO and FHA, first-time buyers need to educate
themselves about a number of arcane subjects.
acronym PMI also plays a large role in the lives of first-time home buyers. PMI
stands for private mortgage insurance, and chances are you will encounter it
when you start to shop for a loan.
other forms of insurance, which are designed to protect you from hazards,
private mortgage insurance provides protection to the lender. Specifically,
private mortgage insurance ensures that the lender gets paid even if you
default on the loan.
the primary benefit of private mortgage insurance is to the lender, it has its
advantages for buyers as well. The main advantage of PMI for the buyer involves
the down payment, something that concerns many first-time buyers.
private mortgage insurance to protect them, few lenders would be willing to
write loans for home buyers who lack a 20 percent down payment. With PMI, the
mortgage lenders can write those loans, and more first-time home buyers can
enter the market.
course private mortgage insurance is not free, and you can expect to pay the
price for not having a 20 percent down payment. The cost of private mortgage
insurance varies, but it typically runs inverse to your down payment and credit
score. First-time home buyers with low credit scores and low down payments
usually pay the highest PMI premiums, while those with higher down payments and
better credit scores pay less.
a perfect world, all first-time home buyers would be able to put 20 percent
down on the properties they buy. In the real world, with the typical house
costing more than $200,000, scraping together $40,000 to $50,000 is simply not
feasible for many buyers. Private mortgage insurance helps the housing market
by protecting the lender from default and allows many more first-time buyers to
enter the market and enjoy the many benefits of home ownership.