PMI costs go down! Lower costs are a game-changer

Effective August 1st PMI costs in California are going down. The reduced costs open wide the doors for home buyers to purchase a home with low down payments and – low overall payments!

PMI stands for “Private Mortgage Insurance”. When you buy a home with less than a 20% down payment you will need PMI insurance (unless you are using FHA or VA or USDA financing). This PMI insures the lender against loss in the event of your default under the loan agreement.

Here are some helpful hints on how to effectively use PMI:

1. The cost of PMI insurance is as low as .49% for a 90% loan and .67% for a 95% loan. For a $300,000 purchase with 10% down the payment is just $110 per month. This comparable FHA insurance premium with 10% down would be $247 per month -PMI saves $137 per month compared with FHA financing); For a 5% down loan the monthly PMI cost would be just $159 per month.

2. With PMI you can choose the “single-premium” plan and pre-pay for your PMI insurance and never have to pay a dime for PMI again! Is life good or what? For a 90% loan the up-front cost is 1.25 points and for a 95% loan the up-front premium cost is 1.95 points. Before you get too concerned with the cost consider this: The property seller, or even the lender can help pay for this premium. You can ask the seller to help pay for closing costs in your purchase offer; or, if you select an interest rate, say, .125% higher than the market you can have the lender, through “rebate pricing” help cover the cost of your PMI – either way you come out the winner! Better to pay and extra .125% on your mortgage than to pay an extra .67% for PMI insurance.

3. More good news – the PMI cost is tax deductible. However know this: Your home purchase (or refinance) must close by December 31, 2011 under present legislation. And there are some qualifiers: your household income must be at $100,000 annually or lower for a full deduction of the premiums; if you earn more than this a portion of your PMI may be deducted. Please consult your CPA as I am not a tax advisor.

Keep this in mind- if you are seeking to use PMI insurance you will need to have a good credit score. You may contact me at any time and I can pre-qualify you for a home purchase loan.

Happy house hunting!