One common thing about mortgages that many people don’t understand is Personal Mortgage Insurance as it is often called although the proper name for it is private mortgage insurance, abbreviated PMI. So, what is personal mortgage insurance and is it something that you will be required to get on your home loan?  This is an easy question to answer, and it’s almost as easy to calculate about how much you will have to pay for the mortgage insurance premium. Let’s explore what this type of insurance is and how you can prepare for it as you look for a mortgage loan that is right for you.

Private mortgage insurance is insurance that is paid for by you – the buyer – but that pays the lender in case you default on the mortgage. It is required when you pay less than 20 percent down on the home. So for instance, on a $250,000 loan you would have to put $50,000 down to avoid paying PMI. How it generally works is that you will have to pay the first year upfront at closing and then insurance premium is paid monthly as part of your mortgage payment. It’s important to try to avoid this insurance if possible because it can add quite a bit to your mortgage payment.

You can stop paying your mortgage insurance once your home equity reaches twenty percent. You can get the equity to twenty percent by continuing to make payments until it has reached that level, and at that point you can discontinue the insurance. If you do have to carry PMI you’ll want to figure out your personal mortgage insurance rates and to do that you’re going to need a copy of your lender’s rate chart, the amount of the loan, and how much that you are planning to put down on the home. Then you can use a personal mortgage insurance calculator to figure it out, or simply do the math manually.

Suppose that you are buying a home for $300,000 and you can only afford to put 10 percent down, which is thirty thousand dollars. That leaves the loan amount at $270,000 and that is what you will calculate your PMI payment from. If you don’t have a lender’s chart then simply use the amount here as a guide line on your own mortgage insurance calculation, using the amount of your loan and how much you are paying down. Let’s use the number ½ a percent for this example. The first step is to calculate what percentage of $270,000 is ½ a percent of 0.5%.

Multiply 270,000 by .005 and you come up with $1350.  This is the annual premium that you will have to pay for mortgage insurance and you probably will have to pay up front at closing. The next year, the monthly payment will be added to your mortgage payment, which is $112. So one hundred and twelve dollars on top of whatever you were paying as a mortgage payment. This is why you should avoid PMI if you can. Talk to your lender and ask about a split loan or other options to avoid having to pay a PMI payment.

Buying a new home these days can be quite the task. Homeowners all over the nation are watching as prices are sky-rocketing. With the price of homes rising, it makes it a bit more difficult to pay a 20% or even 15% down payment. This is especially difficult for first time buyers. So what happens if you really can not afford that large of a down payment? Luckily, there are a few options to look at before trying to find the cash.

Many banks will allow you a no-down or low-down payment. This seems like a good idea, but at the same time could end up costing you more money in the end. When you pay little or no down payment, you end up paying a larger monthly payment because you are borrowing more money from the bank.

They also require that you pay for private mortgage insurance (PMI) which protects the lender from loss in case you default your loan. Also, make sure that your rates will not be changing. If your loan has a fixed rate then you will not need to worry. But, if your loan has an adjustable rate and the interest rate goes up, so will your monthly payments. Make sure that you will be able to afford that if the situation arises.

Sometimes buyers purchase a home thinking that if they can not afford their high mortgage payments they will just sell the house and enjoy the equity. This is not a good idea especially when dealing with large sums of money.

Jumping into a mortgage that looks like a “good deal” is never a good thing either. Every day you get offers over the phone, on the internet and in the mail. Make sure that you are looking at all the details before entering into any sort of agreement with them. Especially when they offer little or no down payment. They may seem like good offers at first glance, but most of them will require that you purchase private mortgage insurance and have higher monthly payments.

Before picking out a loan from a lender, you can always take a step back and ask yourself how mucho you can really afford in monthly payments. Try putting a monthly amount away from your paychecks minus your rent. Is it achieveable? Then you are ready to get a mortgage.

Can you save some money for a few months to be able to pay a 15% down payment? What about a 10% down payment? Every little bit will help so try and see what you can do. Paying more up front will make the monthly payments lower and reduce the amount of the overall loan.

Remember that every little bit counts! If you try to save some money every month and it is just not working out, than maybe now is not the time for you to purchase a home. Check out all of your options though. If now is not the time, don’t give up on thinking that you will never own a home.