What Do MI and PMI Mean for You as a Buyer?

Carratala Group Real Estate Video Blog

What is MI? What is PMI? What’s the difference? What does it mean for you as a buyer? Ty Smith from Envoy Mortgage joins us today to answer those questions.

MI simply stands for mortgage insurance. MI is government-funded for FHA loans and insures the loan against defaulting for the lender. You’re basically paying for insurance to pay the lender back in case you default on the loan. A lot of folks don’t want to pay mortgage insurance, and we understand that. Like any insurance, it’s not fun to pay. However, it’s there so lenders can lend money when you have less than 20% to put down.

PMI stands for private mortgage insurance. PMI is for conventional loans and is issued by a private company. PMI is a tax deduction at the end of the year.

If they didn’t have these programs, most of the population couldn’t buy a property.

Mortgage insurance on an FHA loan pays lenders back the entire amount of the loan so they can wipe their hands clean of it and HUD can take that home back, put it on the market, and try to sell it. That allows lenders to lend money at 3.5% down, with higher debt ratios and lower credit scores. Private mortgage insurance, on the other hand, only insures the top 35% of the loan. The lender is still responsible for the home being sold on the market in case of a foreclosure. In this case, the more you put down, the lower your premium will be.

It can sound convoluted, but if they didn’t have these programs, most of the population could not buy a property.

If you have any other questions, please feel free to give us a call or send us an email. We look forward to hearing from you!