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Private Mortgage Insurance

Topic: Mortgage

PMI is used when brokers have been advocating using a first trust deed and a second trust deed, combination to eliminate private mortgage insurance. PMI protects the bank from any deficiency at time of a foreclosure. The borrower receives no benefit or protection from having PMI. The consumer using the first and second trust deed combination in most situations would have lower payments and slightly greater tax benefits, until recently there was no tax benefit in having PMI on the mortgage.

A new product has now emerged to allow for 100% financed stated income loans to exist after many major banks have pulled their 80/20 100% financed stated income loans from the market. This pullback was a direct result of banks not being able to sell their 20% loans on the secondary market on Wall Street, because this group of high-risk loans started to falter in regards to their performance. To fill this void a new single loan up to 100% with PMI built into the pricing has arrived. This product allows the buyer to state their income versus providing pays tub and W-2 forms. Banks now are looking for the insurance protection that PMI offers them in case of a foreclosure. This new trend will allow buyers to attain the needed financing that high cost areas require and allow the banks to be protected at the same time.

Another school of thought promoted more of a long term strategy. By opting for PMI, lower payments could possibly be achieved once two years of home ownership had passed and a 20% equity position was reached. At this point with an appraisal the bank would have to remove the PMI. The net result was then lower payments and one loan with a lower rate than the second loan would have had. The federal government just added an additional benefit for the use of PMI. If your household adjusted gross income is under $100,000 the PMI may now be deducted as an expense. Our advise - seek the expertise of an accountant or other tax professional.


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