subject: Know About Pmi When Buying Miami Luxury Condos [print this page] Many buyers are opting for FHA loans when buying homes. But since these loans have limitations, some Miami luxury condos buyers may not be able to qualify. Conventional loans are the only other options. Unfortunately, many buyers are wary of these mortgage options because lenders typically require them to purchase PMI or Private Mortgage Insurance. This is especially true if the buyers dont meet the typical 20-percent down payment. Here is what you need to know about this oft-shunned loan accessory.
PMI and its cost
If you cant afford the 20-percent for the mortgage of your Miami luxury condos, you might be required by your lender to purchase private mortgage insurance. Lenders normally require this also to protect themselves in case you default in your mortgage in the future. Its quite crazy to realize that you are buying insurance to protect the lender from loss. But that is the way it is.
Fortunately, you dont have to hunt around town to look for PMI providers. You can ask your lender for an affiliate mortgage insurance. Sometimes lenders even refer insurance providers without the borrowers asking.
After you find out that you're required to purchase PMI to back up the mortgage for the Miami luxury condos, you must hence know how much its going to cost you. Generally, the costs of PMI vary but premiums will typically cost you around .50 percent of the loan amount for the first year of the loan. The premium, in addition, is also paid during the later part of escrow. Fortunately, premiums lower for the succeeding years.
Equity
After gaining 20 percent equity in your condo, you can drop the PMI. According to the Homeowners Protection Act, once the loan-to-loan value ratio reaches around 78 percent of the original value of the home and the loan closed after July 1999, the PMI can be dropped.
When PMI is useful
Although a majority of buyers often avoid PMIs, there are still moments when it is quite useful. If you plan to remodel the Miami luxury condos immediately after you buy it, paying a full 20 percent down payment may not be a viable option since you still need to answer for the expenses of the remodeling. This is one of those moments when the PMI will sound tempting. Since it is an option that will allow you to pay for less than the required down payment, you can buy it instead and use the extra cash for the remodel project. You can build equity (there are home improvement projects that can add value to the home) and drop the PMI faster.
