Private Mortgage Insurance On Home Loans
Private mortgage insurance on home loans, also referred to PMI, is a mortgage insurance program that is created to protect mortgage lenders from default and loss on mortgage loans that are of higher risk. Private mortgage insurance on home loans is the conventional mortgage insurance version of FHA’s mortgage insurance premium. If a conventional loan home buyer can put a 20% down payment on his or her home purchase, no private mortgage insurance on home loans is required. Any loan to value greater than 80% loan to value, requires private mortgage insurance on home loans with conventional mortgage loans. There are huge gaps and variables in how much a home mortgage loan borrower pays for private mortgage insurance on home loans on conventional loans versus FHA mortgage insurance premium.
FHA Mortgage Insurance Premium
Home buyers seeking FHA loans are required to pay mandatory FHA mortgage insurance premium. The FHA loan mortgage borrower needs to pay a one time upfront 1.75% mortgage insurance premium and a 1.35% annual mortgage insurance premium on the balance of the FHA loan for the life of the FHA loan. The 1.75% upfront mortgage insurance premium is added on the balance of the original mortgage loan so the home buyer does not have to come up with it upfront at the time of closing. The 1.35% FHA annual mortgage insurance premium will always be charged for the life of the FHA loan. The only way this 1.35% annual FHA mortgage insurance premium can be eliminated is by the homeowner to refinance the FHA loan into a conventional loan or by selling their home and paying off the balance of their FHA loan.
Conventional Loan Private Mortgage Insurance
Private mortgage insurance on conventional loans is a totally different apple compared to FHA mortgage insurance premium. Whether you have good credit, bad credit, high debt to income ratios, low debt to income ratios, compensating factors, or any other positive or negative factors, your FHA mortgage insurance premium will remain at a constant 1.35% of your mortgage balance amount. With conventional loans, it is different. Everyone’s private mortgage insurance premium varies depending on several factors. It is common sense that the higher your loan to value is the higher risk the loan is because of the smaller down payment. However, the loan to value is not the only factor that determines your private mortgage insurance premium. The amount your private mortgage insurance factor and the amount you will pay is determined by other factors such as your credit scores, your debt to income ratios, and the type of property you are purchasing such as a condo, townhome, or single family home.
No Private Mortgage Insurance On Home Loans: Lender Paid Mortgage Insurance
Many mortgage lenders will give you an option where no private mortgage insurance is required for conventional mortgage loans with higher than 80% loan to value. This is called lender paid mortgage insurance and is referred to it as LPMI and there are no monthly private mortgage insurance premium required to be paid by the mortgage loan borrower. There is another private mortgage insurance program called single premium mortgage insurance for conventional loans.
- Single Premium Financed Mortgage Insurance– A single premium financed mortgage insurance is similar to FHA upfront mortgage insurance premium where a larger upfront premium is charged and the upfront premium is added to the balance of the mortgage loan. m
- Lender Paid Mortgage Insurance, LPMI – With Lender paid mortgage insurance, takes the risk on the conventional loan in lieu of charging the mortgage loan borrower a slightly higher mortgage rate. The higher mortgage rate charged on the mortgage loan borrower is determined by the borrower’s risk factor which is determined by evaluating the borrower’s loan to value, credit scores, credit history, debt to income ratios, reserves, and other determinants.
- Monthly private mortgage insurance – The most common form of private mortgage insurance is the monthly private mortgage insurance program where the mortgage loan borrower pays a constant private mortgage insurance premium until the loan to value on their mortgage loan drops to a 78% loan to value. Unlike FHA mortgage insurance premium where you cannot eliminate the 1.35% annual FHA mortgage insurance premium, conventional private mortgage insurance can be cancelled as long as you have had private mortgage insurance for at least two years and have your loan to value at 78% LTV or less. Determining the value of your property is done by getting a new appraisal. If your property has not gone up in value, you can pay down your loan so that you meet the 78% loan to value and you can then cancel your mortgage insurance premium.
Private Mortgage Insurance Providers
There are many private mortgage insurance companies where most mortgage lenders can get quotes from. All private mortgage insurance companies underwrite every mortgage loan application similar to how mortgage lenders underwrite their mortgage loan applications. A private mortgage insurance company can deny insuring a mortgage loan. If this happens, the mortgage lender takes it to a different private mortgage insurance provider.