MSU Extension MI Money Health

If you are thinking about buying a home, ideally you should save 20 percent for a down payment. If you do not, your lender will likely require you to secure mortgage insurance (PMI) prior to signing off on the loan. This is an additional expense on top of your monthly mortgage payment, with the intention of protecting the mortgage company if you default on the note. Investopedia lists several reasons would-be homeowners should try to avoid paying this insurance. This article will answer five questions about mortgage insurance.

• What is mortgage insurance? Also known as “mortgage guarantee” and “home-loan insurance”, it is an insurance that protects the lender in case of a foreclosure.
• Is it required? If your down payment on a conventional loan is less than 20 percent of the home’s value, Private Mortgage Insurance (PMI) is usually required by the lender.
• How do I calculate mortgage insurance? PMI generally costs 0.3 -1.5 percent of the loan amount, according to Investopedia. For example on a $100,000 loan including a one-time 1 percent PMI fee at closing, you could be paying $1,000/year or $83.33 per month.
• How long do I have to pay PMI? You will typically pay a mortgage insurance fee at closing, then a monthly fee as part of your payment until you’ve paid off 22 percent of the loan. If your loan is an FHA loan you will pay mortgage insurance premiums (MIP’s) for the life of the loan.
• How do I stop paying PMI? Once the homeowner has met the 20 percent threshold--which can take years--many lenders require the homeowner to draft a letter requesting that the PMI be canceled. The lender may also require a formal appraisal of the home prior to its cancelation. This process can take several months. Check with your lender and read the fine print on the PMI policy.

Homeownership is one of the biggest financial decisions you make. Another good idea is completing a certified home buyer education course before the loan closing. This education is required to qualify for many mortgage programs. Local housing counseling agencies who offer this education may be aware of federal and state funding opportunities as well as down payment assistance programs. The pre-purchase education courses may be free or low cost. Visit MIMoneyHealth, the U.S. Department of Housing and Urban Development (HUD) Office of Housing Counseling to find your local housing counseling agency. Or look up your state online.

Michigan State University Extension offers three options to complete a home buyer education courses. A certificate is given when the course is completed and is valid for one year after being signed. Choose the most convenient method for you.

• Online, self-paced program - $89 with the $10 coupon code on the registration page. Scholarships available. Phone call with a housing counselor upon completion.
• Live, online - 4-hour class in a video meeting room with other participants. Fee is $25. Go to https://www.canr.msu.edu/mimoneyhealth/events to find the Homeownership Education webinars and click to register.
• In-person class at no cost - Attend a six hour class at an MSU Extension office. Go to https://www.canr.msu.edu/mimoneyhealth/events to find the schedule and click to find registration information.
• Make an appointment – Meet for 2-3 hours with one of our Financial and Homeownership Education staff at a MSU Extension office at no cost.

Be prepared for the home purchase process by being well informed. Making financial decisions takes time, patience, and discipline. Many resources are available to assist you.