Understanding Private Mortgage Insurance. PMI: It's Pros and Cons

     Understanding Private Mortgage Insurance 

PMI:  The Pros and Cons

     Although the term "PMI" ... Private Mortgage Insurance is seen and heard frequently, there remains a shroud of mystery surrounding it ...

     When I first speak with my potential borrowers, they sometimes have a negative reaction to my introducing the topic of Private Mortgage Insurance. Their faces give their thoughts away, as they look like they just swallowed some awful tasting medicine.

     But I find many times when asked, they really don't know or understand what PMI actually is.  They don't know its strengths or weaknesses.  Or what value and service it can or can't provide them.  

     As with most things, there are pros and cons to Private Mortgage Insurance.  Each must be explained and discussed thoroughly. Unfortunately, there is no simplistic, broad, finite answer I can provide when they ask, "Should I or shouldn't I utilize and pay Private Mortgage Insurance"?  

     (I add:  If anyone expresses a snap judgment or opinion regarding your use of PMI ... run!)

     Prior to making a decision pro or con, some math must be performed.  Then the Borrower and I must discuss the pros and cons of utilizing (and not utilizing) PMI.  

     Then and only then can a Borrower make an informed decision based on their specific needs/finances.  PMI is just not a "one-size-fits-all" thing.

     In most cases:  I find that the real option for my Borrowers is not IF Mortgage Insurance will be required.  It's more a question of what their PMI will cost?  Still, there's no quick easy answer for that either.  

     Why?  

     The answer is always directly tied to the finances and needs of the individual(s) applying for the mortgage.  The mortgage applicant(s) is the only one that can ultimately judge the merits of their using PMI (or not) ... and at what level/cost. 

     So what facts and information are needed to make a sound decision?  

     Having the answers to the following will help:

• What is Private Mortgage Insurance?  
• Why is PMI needed by some Borrowers?  
• What value does PMI offer when financing?
• What PMI options are available?  
• How is PMI calculated?
• How does PMI differ from Title Insurance or Homeowners Insurance?
• How long do I pay PMI on my loan?
• How do I "get rid" of PMI?

 

    *  For Conventional Loans Only:  Here are some facts you should know regarding Private Mortgage Insurance:

1. Private Mortgage Insurance is required when a mortgage loan greater than 80% of value/sales price is made.  (In other words, if LESS than a 20% down payment is made.)
2. Mortgage Insurance is provided and available through several privately-owned companies, thus the term: Private Mortgage Insurance (PMI)
3. Borrowers pay their lender monthly for their PMI costs (within their monthly mortgage payment).  Their lender, in turn, pays out the same amount to the Private Mortgage Insurance Company
4. In most cases, there are other plans available for annual OR upfront payments of PMI 
5. Lenders cover their loan risks (limit their risks) to an 80% level, (Outstanding Loan VS Property Value), known as Loan-to-Value (LTV) with the implementation of Private Mortgage Insurance
6. Considering a lender's risk of lending more than 80% of value/sales price, with loan programs allowing as low as 3% down payment:  There are varying stages or levels of Private Mortgage Insurance charges/costs.  They are based on the increments of down payment percentages made by the borrower (3%, 5%, 10%, and 15% down payment).  
7. The greater the down payment percentage, the PMI is charged/calculated at a lower percentage of the loan amount (thus lower monthly payments toward PMI)
8. Credit Scores affect the cost of Private Mortgage Insurance.  Higher Scores = Lower Costs.
9. On Conventional Loans:  Lenders can require the existence of PMI until the loan balance is paid down to 80%* of the original sales price/value, and must release a borrower from paying any Private Mortgage Insurance when the loan is paid down to 78% of original value/price.  (* Borrowers must request the removal of PMI at the point a loan is paid down to 80%.  Lenders must remove PMI at the 78% level.)
10. Refinancing of a loan that has PMI currently, is a common way to eliminate/reduce substantially the cost of Private Mortgage Insurance.  
11. Refinancing is especially beneficial when the interest rate on the mortgage loan can also be reduced at the same time.  (Timing is everything - Interest Rate levels dictate if Refinancing for this purpose is favorable or not).

12. It also may be possible to remove Private Mortgage Insurance without refinancing, but the borrower must make a request to do so ... and meet criteria established by the lender.  (Ask me for further details) 

     As you can see from the info above, arriving at a decision regarding the use of Private Mortgage Insurance can be somewhat challenging for Borrowers.  So it's not unusual for me to hear the following: 

• Wow! 
• Can I avoid PMI?
• Can I limit its costs?
• How can I do that? 

     The answers to these questions will be provided in my next post.  But it's important to point out here: 

• There IS a difference between FHA and Conventional Mortgage Insurance.  (Makes the decision even more interesting!)
• FHA Mortgage Insurance will be addressed in a separate blog (to follow) 
• Private Mortgage Insurance may be a sound viable solution if you're a hopeful home buyer wanting to buy with a small down payment  
• It may be the ONLY option for you if you're a borrower hoping to buy/refinance with less than 20% down 
• Entering the Chicagoland/IL/WI housing markets while interest rates are so low, borrowing money is so cheap, rents are rising quickly, and home prices may still be in reach can offset the cost of paying PMI.  Only you can decide if it's a beneficial decision for you to do so.     

     And again, the only way to arrive at a sound decision for yourself is to contact your Loan Officer and ask questions.  

     If you're considering the purchase and/or financing of a home ... and the possible use of Private Mortgage Insurance ... seek all the facts and answers you need to make an informed decision right for you ... 

 

Are you hoping to Construct, Buy, Refinance or Purchase a home or investment property in Chicagoland or somewhere else in Illinois or Wisconsin?

Looking for mortgage financing answers, options, solutions, and experienced assistance?  Contact me! I'll put my 40 years of Mortgage experience and expertise hard to work on your behalf.

I'm easily found at:

Gene Mundt

Mortgage Originator -NMLS #216987 - IL Lic. 031.0006220 - WI License #216987

American Portfolio Mortgage Corp

NMLS #175656

Direct: 815.524.2280

Cell/Text: 708.921.6331

eFax: 815.524.2281

www.genemundt.com

gmundt@goapmc.com

   

Gene Mundt, Mortgage Originator, an Originator with 40+ years of mortgage experience, will offer you exemplary mortgage service and advice when seeking: Conventional, FHA, VA, Jumbo, USDA, and Portfolio Loans in Chicago and the greater Chicagoland region, including:

The Lincoln-Way Area, Will County, (New Lenox, Frankfort,

Mokena, Manhattan, Frankfort Square, Joliet, Shorewood, Elwood, Lockport, Wilmington, Crest Hill, Symerton, Braidwood, Channahon, University Park, Beecher, Plainfield, Bolingbrook, Romeoville, Tinley Park, Homer Glen, Crete, Peotone, Naperville, etc.), DuPage County, Kane County, Grundy County, the City of Chicago, Cook County, and elsewhere within IL & WI.

#homeselling #PreApproval #mortgageconsultation #positioning #housingmarket #mortgageapplication #InterestRates #homebuying #refinancing #homeloans #talkwithalender #PreApproval #stoprenting #newconstruction #securerate #househunting #mortgage #ratelock

#GeneMundt #NewLenoxMortgageLender #ChicagolandMortgageLender #howmuchhomecanIbuy #whatinterestratecanIget #timing #mortgageexpert #moneytalk #homeloansmadesimple #experiencecounts #homebuilding #float #lockarate #askquestions 

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Heard Private Mortgage Insurance is Scary? Not If You Know the Facts

Heard Private Mortgage Insurance is Scary?
 Not If You Know the Facts

If you've done much research regarding mortgage financing, you've probably heard the term "Private Mortgage Insurance" ...

You may have also heard that Private Mortgage Insurance is scary or should be avoided.  But in reality, in the right situations ... it can be the solution to your home buying and financing challenges.

What do I mean?  

Let me start by explaining what Private Mortgage Insurance is ...

Private Mortgage Insurance, often referred to as PMI, is insurance provided by a private mortgage insurance company.  The insurance protects Lenders against loss (to an 80% Loan Limit) if a Borrower defaults on their mortgage.  This, in turn, enables Lenders to offer financing options to Borrowers making smaller down payments.   (Mortgage Insurance is provided and available through several privately owned companies.)  

As housing prices have risen and it's become more challenging to save for down payments, Private Mortgage Insurance has become an option considered more frequently by Borrowers.  When utilized, it enables Borrowers to receive Loan Approval, even when they have placed less than 20% down payment on a home purchase.  That can be a very welcomed advantage.

Next:  Private Mortgage Insurance Costs, How PMI is Paid, Pros and Cons

Home Buyers/Borrowers must know ... utilizing the Private Mortgage Insurance option does come at a cost.  Typically that cost is paid in monthly increments as a portion of the monthly escrow payment, along with prorated shares of Real Estate Taxes and Homeowners Insurance.  Once the Lender receives the payment it, in turn, pays that same amount to the Private Mortgage Insurance Company

There are varying stages or levels of Private Mortgage Insurance charges/costs.  Costs are based on the increments of Down Payment percentages made by a Borrower (3%, 5%, 10%, and 15% Down Payment).  

• The greater the Down Payment percentage:  The PMI is charged/calculated at a lower percentage of the loan amount (thus lower Monthly Payments toward PMI).
• Credit Scores:  Credit Scores affect the cost of Private Mortgage Insurance.  The higher the Credit Scores, the lower the costs.

But other payment methods for PMI do exist:  PMI can be paid by the Borrower in one lump sum at the time of Closing as part of their Closing Costs.  And in some instances, Lender-paid mortgage insurance is also an option available to Borrowers. (See below for more information).

Next:  The differences between Conventional Loan PMI and  FHA Loan PMI.  

Following are facts regarding both:

Conventional Mortgages:

• Private Mortgage Insurance is required on Conventional Mortgages where the first mortgage loan is GREATER than 80% of the Purchase Price.  
• Costs are calculated based upon: 

1. The Borrower's MIDDLE Credit Score 
2. Down Payment percentage
3. The PURPOSE for the loan (Purchase, Cash-Out Refinance, Etc.)

• For a Borrower-Paid Monthly Payment Plan:  Every 20 point variance in Credit Score, affects the amount of Mortgage Insurance paid 
• Lenders can require the existence of PMI until the Loan Balance is paid down to 80% of the original Sales Price/Value  
• Lenders must release a Borrower from paying any Private Mortgage Insurance when the loan is paid down to 78% of original Value/Price 
• Lenders must remove PMI at the 78% level 
• Borrowers must request the removal of PMI at the point a loan is paid down to 80%
• Refinancing of a loan that has PMI is possible and is a way Borrowers can eliminate or reduce the cost of their Private Mortgage Insurance  

FHA Loans (Federal Housing Administration):

• ALL FHA Loans require Mutual Mortgage Insurance, to some degree or some cost, regardless of Down Payment Percentage.  (The Mortgage Insurance required by FHA is mandatory, guaranteed, and government issued) 
• Variations are based upon the TERM of the Loan (i.e. 30-year or 15-year loans)
• If the Down Payment is 10% or MORE, the cost will be lower than if putting down just the minimum Down Payment (Very much the same as Private Mortgage Insurance)
• FHA charges an upfront, but financeable, Mortgage Insurance Fee of 1.75% of the Loan Amount.
• Most Borrowers choose to borrow the FHA charge.  The cost is added to the true "Base Loan Amount" and is financed over the term of the Loan (30 years).  

      The advantage to borrowing this FHA charge is:  Borrowing typically results in a slightly higher monthly payment ... but saves the Borrower several thousand dollars in costs at Closing.

There are some loans that DON'T have Mortgage Insurance.  Those are:

• VA Loans:  Available only to Veterans with Benefits
• Conventional Loans with 20% or more Down Payment, resulting in a loan amount of 80% (or less) of the Purchase Price
• Loans that charge a HIGHER Interest Rate to "offset" or allow the Lender to pay the PMI on the Borrower's behalf. 
• "Piggy-back" loans, where the Borrower's down payment is 10% of Purchase Price, but there is a Second Mortgage taken at the same time as the First Mortgage, to eliminate the need for any PMI.  

      Typically, the cost or payment for the 2nd Mortgage is less than the cost of the PMI, therefore, a possible advantage to the Borrower.  (A thorough analysis should be conducted with your LO in order that comparisons can be properly made.) 

If you're a hopeful home buyer, keep an open mind regarding Private Mortgage Insurance.  PMI may be a sound, viable, and beneficial solution for you when financing a home.  

Talk to a Lender ... as soon as you decide to buy.

Why?  As you can tell from the info provided above, Private Mortgage Insurance is not "one-size-fits-all".  Every Borrower's scenario is different.  With enough time, a Lender can help you "position" yourself best for the most advantageous mortgage program and PMI option.  

Take the steps to learn all the ins and outs, pros and cons that come with PMI.  Get the facts about PMI as they pertain to you.  That way you can make a sound informed decision moving forward.

To find out if Private Mortgage Insurance can prove of benefit to you when you buy in New Lenox - Chicagoland - IL - WI, Let's talk today ...   

     * When in need of Mortgage info or service when buying a home in New Lenox, or elsewhere in the Chicagoland - IL - WI region, contact me. I'll be happy to put my 40+ years of mortgage experience and expertise hard to work on your behalf.

I'm easily found at:

Gene Mundt

Mortgage Originator - NMLS #216987 - IL Lic. #031.0006220 - WI Licensed

American Portfolio Mortgage Corp.

NMLS #175656

Direct: 815.524.2280

Cell/Text: 708.921.6331

eFax: 815.524.2281

gmundt@goapmc.com

www.genemundt.com

   

Gene Mundt, Mortgage Originator, an Originator with 40+ years of mortgage experience, will offer you exemplary mortgage service and advice when seeking: 

Conventional, FHA, VA, Jumbo, USDA, and Portfolio Loans in Chicago 

and the greater Chicagoland region, including: 

The Lincoln-Way Area, Will County, (New Lenox, Frankfort, Mokena, 

Manhattan, Joliet, Shorewood, Crest Hill, Plainfield, Bolingbrook, 

Romeoville, Naperville, etc.), DuPage County, the City of Chicago, 

Cook County, and elsewhere within IL & WI.

Referrals are Appreciated and Welcomed

How to Remove Private Mortgage Insurance Without Refinancing

How to Remove Private Mortgage Insurance 

Without Refinancing

Are you a homeowner with a mortgage that currently has  PMI ... Private Mortgage Insurance?  

If so, you may qualify to have your PMI monthly payment terminated without refinancing your current loan.  

To qualify you must meet the following criteria when requested by you the borrower (versus automatic termination by the Loan Servicing Company):

• Your mortgage is 5 years old ... and you've achieved 80% Loan-to-Value (LTV)
• Your mortgage is at minimum two (2) years old and you've reached a 75% Loan-to-Value of current appraised value
• You are in a Borrower-paid monthly PMI option 

For borrower-requested termination of PMI:  This form of termination is different than automatic cancellation done by the servicer of your mortgage loan.  The date that you are eligible for termination of PMI should have been provided to you at the time of your loan closing.

For automatic PMI termination:  Your mortgage loan servicer will drop your PMI automatically when the Loan Balance reaches 78% of the ORIGINAL Value of the home at time of purchase (or refinance), assuming the loan payments have been made on time and the loan is at least 2 years old. 

You can request termination of PMI earlier also, if you meet this criteria: 

• If you have made additional payments to your mortgage that have reduced the principal balance of your mortgage to 80% of the original value of your home
• If you have reached the threshold for PMI termination prior to the date provided you at your closing  

A request to terminate must be made in writing.  And again, certain criteria must be met in order to successfully complete the termination of your PMI.  

However, it should be noted that other criteria may also be in place, depending on the type of loan you have.  For this reason, it's best to reach out to your lender in advance to receive the specifics surrounding your personal financing/termination scenario.

No matter the method, it's good news for mortgage holders that methods for termination of Private Mortgage Insurance (PMI) outside of refinancing exist and can be available to them.  

To find out the availability and full-menu of options available to you, reach out to your lender today.

Are you hoping to Construct, Buy, Refinance or Purchase a home or investment property in  Chicagoland or elsewhere in Illinois or Wisconsin?  

Looking for mortgage financing answers, options, solutions, and experienced assistance?

Contact me!  I'll put my 40 years of Mortgage experience and expertise hard to work on your behalf.
I'm easily found at:

Gene Mundt

Mortgage Originator -NMLS #216987 - IL Lic. 031.0006220 - WI License #216987

American Portfolio Mortgage Corp

NMLS #175656


Direct: 815.524.2280
Cell/Text: 708.921.6331
eFax: 815.524.2281
www.genemundt.com
gmundt@goapmc.com





 


              
   



      Gene Mundt, Mortgage Originator, an Originator with 40+ years of mortgage experience, will offer you exemplary mortgage service and advice when seeking: Conventional, FHA, VA, Jumbo, USDA, and Portfolio Loans in Chicago and the greater Chicagoland region, including: 
The Lincoln-Way Area, Will County, (New Lenox, Frankfort, 
Mokena, Manhattan, Frankfort Square, Joliet, Shorewood, Elwood, Lockport, Wilmington, Crest Hill, Symerton, Braidwood, Channahon, University Park, Beecher, Plainfield, Bolingbrook, Romeoville, Tinley Park, Homer Glen, Crete, Peotone, Naperville, etc.), DuPage County, Kane County, Grundy County, the City of Chicago, 
Cook County, and elsewhere within IL & WI.


Referrals are Appreciated & Welcomed!