Mortgage Insurance, what is it and why is it a thing?
PMI (Private Mortgage Insurance) and MI (Mortgage Insurance) are similar in that they are both types of insurance that protect the lender if a borrower defaults on a mortgage loan.
However, there are some critical differences between the two:
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Source of insurance: PMI is provided by private insurance companies, and MI is provided by government-sponsored entities such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA).
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Required for different types of loans: PMI is typically required for conventional loans, while MI is needed for government-backed loans such as FHA or VA loans.
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Cost: The cost of PMI varies depending on the loan-to-value ratio and the size of the down payment, while the price of MI is usually a percentage of the loan amount and is built into the monthly mortgage payment.
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Eligibility: Eligibility for PMI is based on credit score, debt-to-income ratio, and other factors, while eligibility for MI is based on the type of loan and the specific requirements of the government-sponsored entity.
Ultimately, the choice between PMI and MI will depend on the type of loan you seek, your financial situation, and your ability to meet the requirements of the specific government-sponsored entity. It may be helpful to consult with a financial advisor or real estate professional to determine which option is best for you.
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