Lender Paid Mortgage Insurance On Conventional Loans

This BLOG On Lender Paid Mortgage Insurance On Conventional Loans Was UPDATED On March 4th, 2019

Conventional Loans are called conforming loans because they need to conform to Fannie Mae and Freddie Mac Guidelines. Mortgage insurance is required for all conventional loans with greater than 80% loan to value. Conforming Loans are not government loans and are not guaranteed by any government agency. Private Mortgage Insurance is not a fixed rate like it is for FHA.

  • All FHA loans require mortgage insurance of 0.85% of the mortgage balance amount throughout the life of a 30 year fixed rate FHA loan
  • For conventional loans, mortgage insurance is mandatory until the property has at least an 80% loan to value
  • Mortgage insurance for conventional loans varies depending on the borrower’s credit profile, loan to value, and property type
  • I can be much lower than FHA MIP for higher credit profile borrowers
  • Unlike mortgage insurance of FHA loans with a set limit of 0.85% of the mortgage balance amount, private mortgage insurance varies depending on the loan to value and borrower’s credit and financial profile
  • It is based on risk and the lower the risk, the lower the mortgage insurance factor

Lender Paid Mortgage Insurance: Alternative To Eliminating FHA Mortgage Insurance Premium

Lender paid mortgage insurance, also known as LPMI, is where a borrower does not have to pay private mortgage insurance on conventional mortgage loans with higher than 80% loan to value.

  • Refinancing an FHA loan into a lender paid mortgage insurance conventional loan will eliminate the FHA loan’s mortgage insurance premium
  • Borrowers need to pay a 0.85%% FHA mortgage insurance premium on the balance of their mortgage loan every year for the duration of their FHA loan

Borrowers can eliminate their monthly mortgage insurance premium by refinancing their FHA into a conventional lender paid mortgage insurance mortgage loan if they have greater than an 80% loan to value.

Lender Paid Mortgage Insurance Conventional Mortgage Program

Conventional loans have generally higher credit requirements than FHA loans credit requirements.

  • Conventional mortgage rates are also higher than FHA insured mortgage rate
  • Conventional mortgage loans are credit sensitive unlike FHA insured mortgage loans
  • The higher credit scores are the lower mortgage rates are

To get the best conventional mortgage rates on the market, the mortgage loan borrower needs a credit score of over 740.

Two Types Of LPMI

There are two types of conventional LPMI programs.

  • The first conventional LPMI program is where there are no fees or upfront mortgage insurance costs but the mortgage rates are about 0.50% higher than regular conventional mortgage rates
  • The second type of lender paid mortgage insurance program is where the borrower gets the same par conventional mortgage rates but they are charged an upfront mortgage insurance premium
  • The upfront mortgage insurance premium can be paid by sellers concession on purchase transactions

Home Buyers who need to qualify with a direct lender with no mortgage overlays can contact Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com.

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