What Is Private Mortgage Insurance On Conventional Loans?

Private mortgage insurance on conventional loans are required for conventional mortgage loan borrowers who put less than a 20% down payment on their home purchase.  The more a home buyer puts down, the less the mortgage lender has due to the fact that statistics prove that the more skin in the game the home buyer has, the less likelihood of a potential foreclosure and that the mortgage loan will not default.  Private mortgage insurance premium needs to be paid by the mortgage loan borrower but has absolutely no benefit to the borrower.  Private mortgage insurance premium only benefits the mortgage lender because it protects the mortgage lender in the case the mortgage loan borrower defaults on his or her mortgage loan.

Private Mortgage Insurance On Conventional Loans Compared To FHA Mortgage Insurance

All FHA insured mortgage loan borrowers with 30 year fixed rate mortgages  have mandatory annual FHA mortgage insurance premium which is set at 1.35%.  FHA annual mortgage insurance premium for 15 year fixed rate FHA loans where the borrower can put a 10% down payment gets drastically dropped to 0.45%.  However, for private mortgage insurance on conventional loans, there is no set percentage amount of the mortgage balance.  Private mortgage insurance on conventional loans is calculated not just by the loan to value of the conventional loan, but other factors such as the borrower’s credit scores, property type, and debt to income ratios all play a role on how much the private mortgage insurance on conventional loans premium will be.

Choices Of Private Mortgage Insurance On Conventional Loans Programs

Unlike FHA mortgage insurance premium, there are several private mortgage insurance on conventional loans programs offered by conventional mortgage lenders. The traditional monthly private mortgage insurance on conventional loans  premium is not the only option available to conventional mortgage loan borrowers.  There is the single mortgage insurance premium which for one lump sum at closing will pay the conventional mortgage insurance premium and the conventional mortgage loan borrower does not need to worry about paying the monthly private mortgage insurance.  You can pay the single payment mortgage insurance with the sellers concession from the seller.  The single premium financed mortgage insurance is equivalent to FHA’s upfront mortgage insurance premium.  The mortgage insurance is financed into the balance of the mortgage loan.

Lender Paid Mortgage Insurance

Lender Paid Mortgage Insurance, also known as LPMI, is where the conventional mortgage loan borrower does not pay any mortgage insurance and the conventional mortgage lender will cover the mortgage insurance and the risk in lieu of offering the conventional mortgage loan borrower a higher interest rates.  The higher interest rates will be determined by the strength of the conventional mortgage loan borrower with regards to their credit scores and debt to income ratios.

Private Mortgage Insurance On Conventional Loans

The monthly mortgage insurance is where the conventional mortgage loan borrower pays monthly mortgage insurance and this private mortgage insurance, again, is based on loan to value, the borrowers credit scores, and the borrower’s debt to income ratios.  The monthly mortgage insurance premium can be cancelled  onece the mortgage loan borrower has had the property for at least two years and also once the home’s loan to value reaches the 78% loan to value mark.  The value is determined by an appraisal.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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