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What is PMI?

Personal Mortgage Insurance or PMI is required on all loans in which buyers are only putting a 20 percent down payment or that the bank is carrying 80 percent of the new home loan. This is a protection for the banking institution in case of any default with the sale to cause the bank to lose their funding.

People with less cash on hand for down payments should be interested in PMI because it helps them gain access to funding from banks and lending institutions they might not have otherwise have been able to approach. It also gives them more homes for their money.

With a PMI loan, some home buyers may qualify to purchase a house with only 3-5 percent down payment. This could help low-income families and those in an apartment to fulfill their dreams of home ownership faster. They will not have to wait years to accumulate a savings for a large down payment for a house of their own.

The Homeowner's Protection Act or HPA of 1998 is a federal law that requires the servicers to provide confidential discoveries about the PMI on loans secured on a consumer's residence if it was acquired after July 29, 1999. To further protect the home buyer, there are provisions regarding those loans that closed before this date. Additionally, there are safe-guards for homeowners who request cancellation of PMI and automatic terminations of PMI.

If a consumer's loan reached the 80 percent of payments made, they could request a cancellation of the PMI, saving the homeowner between $250 and $1,250 yearly. This was only honored if the 80 percent of payments was made and the homeowner was in good standing with the lender. Before this ruling, it was up to the homeowner to keep track of their payment history and when they reached the 80 percent mark, with the new law, it is a shared responsibility among the lender and the homeowner.

One problem with this is that it may take a homeowner 10 to 15 years to reach the 80 percent mark because the first several years of payments are going towards interest and fees.

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