This Article Is About Mortgage Insurance Premium On NON-QM Mortgage Loans Lenders will require a mortgage insurance premium on borrowers who have less than 20% equity in their home purchase. The mortgage insurance premium is commonly referred to as MIP. MIP is paid by the borrower for the benefit of the lender. Mortgage insurance premiums are a form of insurance that has no benefits to the borrower. MIP only benefits the lender in cases when borrowers default on their home loans.
All government loans (FHA, USDA, VA Loans) have one or more forms of mortgage insurance premiums. Both Fannie Mae and Freddie Mac require private mortgage insurance on all conventional loans with less than 20% equity. There is no mortgage insurance premium on non-QM loans and bank statement loans for self-employed borrowers.
In this article, we will discuss and cover Mortgage Insurance Premium On NON-QM Mortgage Loans.
How Does Private Mortgage Insurance Work?
Mortgage Insurance Premium is paid for the borrower to benefit the mortgage lender in the event the borrower defaults on their loan. Anyone who puts down less than a 20% down payment is required to have private mortgage insurance on conventional loans. HUD has a mandatory mortgage insurance premium on all FHA Home Loans for the life of an FHA loan. HUD also requires a one-time upfront mortgage insurance premium of 1.75% of the mortgage balance amount. This upfront mortgage insurance premium can be rolled into the balance of the mortgage loan.
Is Mortgage Insurance Premium Mandatory?
Mortgage lenders require that all borrowers who put less than 20% down payment on conforming loans have private mortgage insurance. However, no mortgage insurance premium on non-QM loans is required. The reason being is because the less down payment a borrower puts down, the riskier the borrower is. This is because they do not have skin in the game. Mortgage lenders feel secure if borrowers put 20% or more down payment on their home purchase. However, most home buyers do not have the 20% down payment to put down on a home purchase.
The way private mortgage insurance works are if homeowners defaults on their home loan, the mortgage insurance company will cover the lender up to 20% of the loss.
For example, here is a case scenario:
- if a homebuyer purchased a $100,000 home
- puts 5% or $5,000 down payment
- defaults on their mortgage loan of $95,000
- The mortgage insurance company will cover the home loan borrower’s mortgage lender up to 15%, 80% loan to value
The coverage will get covered by the private mortgage company after the home has been foreclosed to determine the actual loss the mortgage lender took.
Can Mortgage Insurance Premium Be Cancelled?
For FHA, the mortgage insurance premium is mandatory for the life of a 30 year fixed FHA loan. Homeowners cannot cancel or get rid of the FHA mortgage insurance premium on an FHA loan, no matter how low the loan to value is. The only way to get rid of mortgage insurance on an FHA loan is by refinancing an FHA loan to a conventional loan or by paying off an FHA loan. For 15 year fixed FHA loans, borrowers can cancel the FHA MIP after 11 years if they have a loan to value of less than 78% LTV.
Canceling PMI On Conforming Loans
For conventional loans, borrowers can cancel private mortgage insurance once the homeowner’s equity rises higher than 20%. This rise in equity can be by the home appreciation or by paying down the mortgage balance to meet the 80% loan to value mark. An appraisal will be required if the homeowner thinks that their home is appreciated in value. The appraiser needs to be chosen by the mortgage lender through an appraisal management company. A homeowner has no say on which appraiser or appraisal company to use. Appraisals cost between $400 and $600 depending on the region and state.
Avoiding Mortgage Insurance
Borrowers can avoid paying mortgage insurance if they can put at least a 20% down payment on conventional loans. There is no mortgage insurance required on Non-QM loans and bank statement mortgage loans for self-employed borrowers:
- Borrowers can also explore other mortgage loan programs such as taking out a VA loan
- Veterans with a Certificate of Eligibility by the Veterans Administration can qualify for VA Loans with no annual mortgage insurance
- Borrowers can also ask a lender about the Lender Paid Mortgage Insurance Program, also known as LPMI
- For a slightly higher rate, the mortgage lender will not require mortgage insurance and will cover the mortgage insurance
- Other conventional mortgage lenders offer the upfront mortgage insurance program which by paying upfront points
- The mortgage insurance will be covered upfront and no private mortgage insurance is required on conventional loans
- Borrowers can also see if they can get a piggyback 80/10/10 program
How this works is 80% loan to value the first mortgage, a 10% second mortgage, and put 10% down payment.
NON-QM Loans And Bank Statement Loans For Self Employed Borrowers
There is no waiting period after foreclosure, deed in lieu of foreclosure, a short sale on Non-QM loans, and bank statement loans for self-employed borrowers. The great benefit of Non-QM loans and bank statement mortgage loans for self-employed borrowers is that no mortgage insurance is required. 10% to 20% down payment is required on Non-QM loans and bank statement mortgage loans for self-employed borrowers. The amount of down payment required depends on borrowers’ credit scores. Contact Gustan Cho Associates at 800-900-8569 or text us for a faster response for more details. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.
