Private Mortgage Insurance (PMI) Options
PMI Options Private Mortgage Insurance also known as PMI is a lender requirement for any borrower who puts less than 20% down on a home purchase utilizing conventional financing. The purpose of PMI is to protect the lender in the event of a default by the borrower. The benefit to the borrower is that they can get a mortgage with 5% or 10 % down.
The cost of mortgage insurance varies based on the loan to value percentage, debt ratio, credit score, and property type. Much like homeowners insurance, the rates vary from company to company. Many lenders have contractual agreements with several mortgage insurance companies so that they can have flexibility in both product and pricing. One interesting thing to note about mortgage insurance is that there are options for a borrower that should be explored.
Lender Paid MI
Many borrowers can avoid mortgage insurance by accepting a slightly higher interest rate and having the lender absorb the cost of the mortgage insurance.
Single Premium MI
Borrowers can pay the mortgage insurance premium (instead of monthly) at the time of settlement. The cost of the insurance can be financed, and this often results in a significantly lower monthly mortgage payment.
Piggy Back Loan
In the industry, this is called an 80/10/10. A borrower puts down 10% of the purchase price. The lender makes 2 loans. The first loan is 80% of purchase price, and the second loan (typically a home equity loan ) is for 10% of the purchase . Mortgage insurance in not required in this scenario- as neither loan exceeds 80% of sale price.
Monthly MI
This exactly as it sounds. A borrower pays a monthly premium (with their mortgage payment ) until they have a 20% equity stake in the property.
So, how does one decide which path to take here ? It really depends on several factors. One big factor is projected time in the home. The best thing for any borrower to do is to sit down with a reputable lender who can customize a loan for you.
It’s a great time to buy a home in the Delaware Valley
Steve Madonna
Weichert Financial Services
smadonna@weichertfinancial.com
610-566-2045
NMLS # 140438
