PMI VALUATION

It's generally inferred that a 20% down payment is accepted when buying a house. Since the liability for the lender is often only the difference between the home value and the amount remaining on the loan, the 20% provides a nice buffer against the charges of foreclosure, selling the home again, and natural value variations in the event a purchaser defaults.

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During the recent mortgage upturn of the last decade, it was common to see lenders requiring down payments of 10, 5, or often 0 percent. A lender can manage the added risk of the minimal down payment with Private Mortgage Insurance or PMI.

 

This added policy covers the lender in case a borrower defaults on the loan and the value of the property is lower than what is owed on the loan.

PMI can be expensive to a borrower because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and oftentimes isn't even tax deductible. Opposite to a piggyback loan where the lender absorbs all the losses, PMI is money-making for the lender because they collect the money, and they get the money if the borrower is unable to pay.