What Is Lender Paid Mortgage Insurance?
This BLOG On What Is Lender Paid Mortgage Insurance Was Written By Gustan Cho
What Is Lender Paid Mortgage Insurance? Lender Paid Mortgage Insurance is also referred to as LPMI. Lender Paid Mortgage Insurance applies to Conventional Loans only. Private Mortgage Insurance is required for all Conventional Loans with less than 20% down payment. However, Conventional Borrowers now do not have to pay Private Mortgage Insurance premium if they opt to choose a product called Lender Paid Mortgage Insurance or also known as LPMI. Borrowers who choose Lender Paid Mortgage Insurance do not have to pay monthly PMI or private mortgage insurance premium.
What Mortgage Insurance And Why Is PMI Required?
There are two types of mortgage insurance premiums required with FHA Loans. A one time upfront FHA mortgage insurance premium and a lifetime annual FHA mortgage insurance premium for the life of the FHA Loan that is set at 0.085% which is divided up by 12 payments and is part of the FHA borrowers monthly mortgage payment. With Conventional Loans, borrowers who put 20% or more down payment, private mortgage insurance premium is not required. However, private mortgage insurance premium is required for any home buyers who purchase a home with Conventional Loan but puts less than 20% down payment. There is no fixed percentage on private mortgage insurance premiums and many factors play into how much the private mortgage insurance premium will be. Here are some of the factors:
- Amount of down payment
- Type of property
- Credit scores
The purpose for Private Mortgage Insurance is to protect mortgage lenders in the event if the borrower defaults and the property goes into foreclosure just as the purpose for FHA requiring FHA mortgage insurance premium. Without the borrower putting a substantial down payment, lenders are at risk in the event if the borrower were to default and the property goes into foreclosure. Mortgage Insurance protects the lender from losses if the borrowers were to default on their loan. All Conventional Loans where the loan to value or LTV is greater than 80% LTV, mortgage insurance is required and the cost of the private mortgage insurance is paid by the borrowers. The monthly mortgage insurance is added to the borrowers monthly mortgage loan payment.
What Is Lender Paid Mortgage Insurance And How Does It Work?
Many borrowers do not like the fact that they need to make an added payment to their monthly mortgage payment such as private mortgage insurance. What Is Lender Paid Mortgage Insurance? Lender Paid Mortgage Insurance has been created and launched to satisfy borrowers who do not want to make that extra additional monthly payment on top of their regular monthly mortgage payment. The lender covers your private mortgage insurance instead of the borrower. The mortgage lender can pay the LMPI in a one lump amount when the Conventional Loan closes and the borrower no longer needs to worry about private mortgage insurance premium. What Is Lender Paid Mortgage Insurance? See below:
There are two types of Lender Paid Mortgage Insurance:
- The borrower can pay upfront lender paid mortgage insurance. The one time upfront private mortgage insurance premium can be paid with sellers concessions
- The lender can give a lender credit and cover lender paid mortgage insurance. This type of LPMI is covered by the mortgage lender and the borrower does not have to pay any monthly private mortgage insurance premium. However, nothing is free in the mortgage world. The lender pays for the monthly LPMI premium in lieu of a higher mortgage rate charged to the Conventional Loan borrower. Lender Paid Mortgage Insurance is available for borrowers with at least a 680 FICO credit score.
What Is Lender Paid Mortgage Insurance Versus Borrower Paid Mortgage Insurance?
What is lender paid mortgage insurance versus borrower paid mortgage insurance?
We have covered what LPMI is. Now what is Borrower Paid Mortgage Insurance? This is what borrower is:
- Borrower pays annual private mortgage insurance if loan to value is greater than 80%
- Private mortgage insurance will terminate automatically once the loan to value of your conventional loan hits 78% LTV. Conventional loan borrowers can request to remove the private mortgage insurance at 80% LTV. Borrowers who feel that their homes appreciated substantially and have more than 20% equity, they can request for an appraisal and if they have sufficient equity, their private mortgage insurance will will be removed
- A one time upfront private mortgage insurance premium is expensive. It can be more than 2% of the loan amount. Lender Paid Mortgage Insurance is not free and LPMI is offered in lieu of higher mortgage rates. Rates can be 1.0% or higher sometimes.
- Borrower paid mortgage insurance is like annual FHA mortgage insurance premium where it is part of the borrower’s monthly mortgage payment. The great news is that borrower paid mortgage insurance is not required for the lifetime of the loan term like FHA Loans. It can drops off when your mortgage loan gets down to 78% Loan To Value
There are a lot of variables on which private mortgage insurance plan is best for you. Discuss it with your loan officer and see what is the best mortgage insurance program is best suited to you depending on how long you are planning on keeping your home.