This guide covers PMI on Conventional loans with higher than 80% LTV. PMI on Conventional loans with higher than 80% LTV is mandatory per Fannie Mae and Freddie Mac Guidelines. Private Mortgage Insurance protects mortgage lenders in the event borrowers go into default and the home goes into foreclosure. Private Mortgage Insurance is Fannie Mae or Freddie Mac’s version of mortgage insurance.
HUD insures lenders on FHA loans that default. The foreclosure proceeding started after the homeowner stops making their monthly mortgage payments for four months.
Lenders do not want borrowers to go into foreclosure because nobody wins when a borrower goes into foreclosure. Both the homeowner and lenders lose. The homeowner will not just lose their home but also their credit rating will plummet where it will take time for them to re-establish their credit to qualify for a mortgage again. The private mortgage insurance company pays the lender the money lost from the foreclosure. The lender loses also. This holds true even though they get the loss from the mortgage insurance company because of the time and legal fees invested in the foreclosure proceedings. Private Mortgage Insurance companies have different premiums that depend on the borrowers.
Factors That Affect PMI on Conforming Loans
Here is what affects the premium of PMI on Conventional loans with higher than 80% LTV: Borrowers credit scores affect the premium of PMI. The type of property affects the premium of PMI. A single-Family home has the lowest premium. Condos, townhomes, and two to four-unit properties are considered higher risk so PMI is higher. The amount of down payment on a purchase and loan to value on a refinance affects premiums on PMI. The lower the loan to value, the lower the premium. Private Mortgage Insurance premiums can vary depending on borrowers and the property where FHA mortgage insurance remains constant at 0.85% no matter what the borrower’s credit score or property type.
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Cost of PMI on Conventional Loans With Higher Than 80% LTV
The cost of PMI on Conventional loans with higher than 80% LTV is paid by the mortgage loan borrower to benefit the mortgage company. The private mortgage insurance company works directly with the mortgage lender but the premium is paid by borrowers. Mortgage borrowers do not have any benefits from the PMI they pay.
Government Versus Private Mortgage Insurance
Lower down payment home purchase or higher loan to value refinance mortgages require mortgage insurance. There are two types of mortgage insurance: Government Mortgage Insurance and . Private Mortgage Insurance on conventional loans. Private Mortgage Insurance is different than credit life insurance also known as mortgage life insurance. Mortgage life insurance pays the balance of the mortgage in the event the person who took out the policy dies.
Mortgages Backed By Government Agencies
Here are the government mortgage insurance providers to mortgage companies:
- Federal Housing Administration ( FHA )
- The United States Department of Veteran Affairs ( VA )
- Farmers Home Administration ( FmHA )
Conventional Loans & PMI on Conventional Loans With Higher Than 80% LTV
Fannie Mae and Freddie Mac are the two mortgage giants in the U.S. that set the guidelines for Conventional Loans. Both Fannie Mae and Freddie Mac are government-sponsored private companies that purchase Conventional Loans by mortgage companies as well as they conform to their lending guidelines.
Lenders do not require PMI for homebuyers who put at least a 20% down payment on a home purchase or homeowners who refinance their mortgages with 20% or more equity.
Conventional loans are not guaranteed by the government but are insured by private mortgage insurance companies. The reason being is because the homeowner has enough skin in the game and if the borrower were to default, there is at least 20% equity so the risk is minimal for lenders. Click here to find a lender for your loan.
Private Mortgage Insurance Guidelines on Conventional Loans
There are different types of private mortgage insurance programs for Conventional Loan borrowers. Here are some of the PMI programs: One time upfront private mortgage insurance. This type of private mortgage insurance is where borrowers pay a one time upfront private mortgage insurance. There are no monthly PMI payments. Similar to the Upfront FHA mortgage insurance premium. Lender Paid Mortgage Insurance.
Lender Paid Mortgage Insurance is a one-time upfront mortgage insurance premium on conventional loans. Borrowers normally have to pay a one time upfront MIP similar to the FHA one-time upfront mortgage insurance premium of 1.75%.
Borrowers do not have to pay monthly PMI on conventional loans if they pay the one-time upfront LMPI premium. This is because it is already figured in on the mortgage rate. LPMI is very popular where for a slightly higher mortgage interest rate, there is no monthly private mortgage insurance on Conventional Loans. However, to qualify for the LPMI conventional loan program, borrowers normally need a 680 credit score.
Borrower Paid Mortgage Insurance
This is when borrowers pay monthly mortgage insurance along with their principal and interest payments. Borrower paid PMI can be canceled when the loan to value of the home reaches 80% LTV. The higher the borrower’s credit scores are, the lower the private mortgage insurance premium is.