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PMI or Private Mortgage Insurance is a policy which protects the lender who loans money, at a high loan to value, in case you default. Whenever you borrow more than 80% of the price of a home that you are purchasing or refinancing lenders will usually require a PMI policy. The policy is usually paid by you when you make your monthly mortgage payment. The monthly PMI cost is determined by:

1. The type of loan you receive

2. How much of the value of your home you finance above 80%

3. Your loan amount

How much money should I put down on a house. This depends on several factors:

1. Are you looking for the lowest payment possible (usually trying to eliminate PMI)

2. Do you have reserve funds available after your purchase

3. Do you intend to sell in the next few years

One of the biggest criteria an underwriter uses to approve your loan is your ability to repay that loan. They will always check the amount of monthly debt obligations you have (your monthly bill payments that show on your credit report) and compare that with your gross monthly income. Depending on the loan you have applied for the percent of your income allowed to pay your mortgage, taxes, insurance and PMI (if it applies to you) along with your regular monthly debts is your debt ratio. There are actually 2 different debt ratios they use but that is for a different blog entry.

Your Exit Strategy ties directly into why invest in real estate.

Many would be investors say I want the property to generate cashflow. Others say I am looking for appreciation and still others say I'm interested in flipping the property.

Everyone of these types of investors need an exit strategy.

Why invest in real estate?

To answering question one from our last blog entry you have to ask yourself what investment vehicle can I get into and what kind of a return can I earn?

Three of the most popular investment vehicle available to almost everyone are:

1. Invest by putting your money into a cd or moneymarket account

2. Stocks or mutual funds

3. Real estate