Private Mortgage Insurance
Because people are typically earning and therefore saving less today than in previous years, young families find themselves having a more difficult time buying a home than their parents or grandparents did. It can take close to ten years to save enough money just to make the minimum 20 percent down payment that most lending institutions require. However, with private mortgage insurance, people are now able to afford owning their own home in half the time.
What is Private Mortgage Insurance?
Private mortgage insurance is essentially a mortgage guarantee offered by a private insurance company. It allows hopeful homeowners to make a smaller down payment-like only 5 or 10 percent-because it protects the lender, the holder of the mortgage, against any loss if the borrower defaults on the mortgage. Because the probability of default is linked strongly to the amount of money a borrower has personally invested in a home, lenders want that kind of financial guarantee.
In return for the private mortgage insurance, the borrower pays the private insurance company a premium. While it may seem unfair that the lending institution enjoys the protection while the homeowner pays the premium, they in fact benefit by being able to finance their own home much sooner than they otherwise would have been able to. The premiums are spread out over the 25- or 30-year lifetime of the mortgage.
One thing to note is that the premium for private mortgage insurance is based entirely on the amount of the mortgage and the size of the down payment-that is, the insurer does not account for a borrower’s financial stability or their risk of default relative to someone else’s. As a result, those homeowners with a lower risk of default are, for all intents and purposes, subsidizing the premiums of those mortgagors with a higher risk of default.
What effect does this have on a Real Estate Investor?
Negotiating with the mortgage holder as partner is one of the “Nothing Down” techniques that real estate guru Robert G. Allen advocates. The private insurance company that issues the private mortgage insurance can be considered a mortgage holder because the insurance can essentially be viewed as a second mortgage that the homeowner is paying.
For more “Nothing Down” techniques and other real estate strategies, read The One Minute Millionaire: The Enlightened Way to Wealth, produced by Robert G. Allen and Mark Victor Hansen, co-creator of the bestselling Chicken Soup for the Soul series. Learn about more than just real estate investing with this revolutionary system-learn how to successfully build your wealth and how to become an Enlightened Millionaire™ one minute at a time. Visit the One Minute Millionaire website for more information and to register to attend one of Robert G. Allen and Mark Victor Hansen’s excellent seminars.