In today’s marketplace, most people don’t have a ton of money to put down on an Orlando home purchase. Orlando FHA loans allow [right now] as little as 3% down and conventional loans as little as 5-10% down.

Anytime we end up with a first mortgage amount over the 80% loan-to-value ‘mark’ we enter the fun world of Private Mortgage Insurance (PMI). PMI is a mortgage lender’s insurance policy against highly-leveraged houses.

With PMI defaults up almost 40% over last year, though, private mortgage insurers are taking big losses. [Great... them too now?!]

They’re also taking big aggressive steps to prevent additional claims going forward and that is bad news for low-equity homeowners and home buyers.

The changes:

• The first PMI change new, higher insurance rates. Like home insurers that adjust premiums after a worse-than-expected storm season [many of us can relate to that one, am I right?], PMI insurers are raising mortgage insurance rates for all homeowners, regardless of credit history. The higher premiums are meant to counter-balance the higher losses.
• The second change is that some PMI firms are discontinuing coverage for “high-risk” transaction types altogether. This includes purchases of non-primary residences, and cash out refinances above 85 percent loan-to-value.

Both changes, however, point to similar conclusion about home loans: Home equity is increasingly important for today’s homeowner.

PMI rates are higher than they were six months ago and the rising number of defaults makes it likely that rates will rise again soon. As PMI rates increase, so does the cost of homeownership for people whose lenders require it.