Abby's Guide to Home Mortgage Loan
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The mystery of PMI

What is mortgage insurance? If you are financing more than 80% of the price of your prospective home, your lender will require you get mortgage insurance. This policy will protect your lender from foreclosure costs if you default on the loan. 

Now you might be able to purchase it from the FHA or Veterans Administration, but most likely your vendor will be a private company. If your credit score is below 600 you are labeled subprime and will face the higher end of the interest rate stick come closing time. Lenders figure you are in the most likely category for defaulting on the loan and they donít want to be in the position to fund any accompanying costs on your default.

The problem comes when the private mortgage insurance rate or PMI rate isnít defined until you are at the settlement table. Why the PMI mystery before closing? Any change in your credit situation is going to impact the PMI, as well as any information withheld earlier in the mortgage negotiations.

Get copies of your credit report and check for errors. These reports are free. If you find any errors, take care of them before you sit down at the table. Then spend the extra few dollars and buy your credit score. For all three reports, go to the myfico.com site. Preparation is the key.

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