PMI & PMS

It’s that time of the month. Your stomach is in knots. You’re in a horrible mood. Your underwear looks like a crime-scene. Leona Lewis can’t even describe the bleeding that’s going on.

Grossed out yet? Well you shouldn’t be. It’s not what you think.

I’m simply describing a 25-year-old male getting ready to make his mortgage payment. Let’s call Mr. 25-year-old, Richard.

The Similarities

Richard dreads making his mortgage payment, which comes once a month.

Richard often has to dip into his secret stash of cash (which sits in his underwear drawer) in order to make his mortgage payment.

He keeps bleeding. Keeps keeps bleeding, money.

Why? The dreaded PMI.

The American Dream Right

A long time ago, home ownership used to be a dream. People put together a plan, saved up a sizeable down payment, and plunged into a home purchase. Somewhere along the line, this privilege was mistaken for a right. With the high cost of renting, everyone deserves to buy a house; even those who don’t have the income or discipline to save. (sorry, ranting..)

The conventional mortgage required a 20% down payment by the borrower, while a bank/lender financed the other 80%. Now all conventional wisdom is out the window.

If you wanted to purchase a $150,000 home, you would need to build up a down payment of $30,000. Now, with the emergence of PMI, you only need $7500 to “afford” this new home. Cool, right?

What is PMI?

Private Mortgage Insurance (PMI) protects a lender from default. It is typically required on any loan that is over 80% of a home’s value.

The Benefits

PMI allows people to buy a home with as little as 3-5% down payment.

The Bummer

According to Bankrate.com, PMI “typically amounts to about one-half of 1% of the loan…and mortgage insurance premiums are not tax deductible.”

Most lenders won’t notify you of the extra payment you’re sending each month. Once your Loan-To-Value reaches 78% it is YOUR job to notify your lender.

The Tampon (Solution)

Don’t buy a house until you’re ready, period.