lender paid mortgage insurance

The Truth About Lender Paid Mortgage Loans and Why the Big Banks Don’t Want You to Get LPMI

Home buyers who cannot put 20% down on a home will probably need to pay for mortgage insurance. But there are different ways to get around this extra expense. Lender paid mortgage loans is a relatively new concept to home buyers but it’s popularity is soaring. Below is more information about how to do this.

Overview of Mortgage Insurance

Mortgage insurance is required on loans without at least 20% down because the home owner is more likely to default on such a loan. The monthly mortgage insurance payment ensures that the lender will be reimbursed if the home owner stops paying. This is an extra expense of $100 to $200 per month in many cases.

Some mortgage companies offer lender paid mortgage insurance or LPMI. This is mortgage insurance that the lender pays for you. But there is a catch: You need to pay a slightly bigger interest rate to make up for not paying that pesky mortgage insurance. Lender paid mortgage insurance typically gives you a .5% higher interest rate, which can add up to a lot of extra interest over the years. The LPMI option is a very popular choice for borrowers seeking a no PMI mortgage loan.

Why Consider Lender Paid Mortgage Insurance?

People may want to get LPMI because of the lower monthly payments. With a home loan with LPMI, you do not have to pay for mortgage insurance each month. Your monthly mortgage costs will usually be lower. If you have a loan for $200,000, you could save up to $60 per month with LPMI.

Second, having an LPMI home loan means you do not need a 20% down payment. Your upfront buying costs tend to be lower. If you put down 5% or less for an lender paid mortgage insurance loan, you may save thousands of dollars at the closing table on a $200,000 loan.

LPMI can make sense for higher income borrowers who can get a higher tax deduction due to the higher rate of interest. People with a lower income could be able to deduct regular PMI, so LPMI will not give you additional benefits when it comes time to file your taxes. In most cases PMI is tax deductible, so this has to be factored into a side by side comparison.

Why Would You Not Get Lender Paid Mortgage Insurance?

LPMI will always come with a higher interest rate. You will pay a bit more interest over the life of your mortgage by not paying for mortgage insurance upfront. This can add up over the life of your loan if you plan to stay there for many years. If you intend to sell your home in five to seven years, this is not as important.

Some experts say if you put down 5% or less and you are going to stay in the home for less than a decade, LPMI may make sense for you. But people who want to stay in the home for a long time will pay more over the years.

Second, mortgage interest rates are climbing. As of May 2018, mortgage rates are in the 4.5% range and they are trending higher. This means your LPMI mortgage will cost more. Be sure your mortgage lender walks you through the costs of doing LPMI as opposed to a conventional loan. Be sure you are getting a deal that works best for you in your circumstances.

Third, LPMI plays a major factor in the rate of interest you get. The lower your score, the higher the interest rate will be. LPMI can be particularly expensive for people with a credit score below 700. But if you want, you can buy down your interest rate by paying points.

If you have a high LTV near 80%, you may not want to get LPMI. You are nearly done with mortgage insurance anyway.

Other Options

There are other types of loans that have a smaller down payment. One of the most popular is the mortgage backed by FHA. It only requires you to put down 3.5% for many buyers. In some cases, these loans may have a lower interest rate than LPMI. Note however: You will need to pay for mortgage insurance throughout the life of the loan. Compare FHA to lender paid mortgage insurance options.

In a conventional mortgage, the lender requires you to pay for mortgage insurance until your loan balance is below 78% of the value of the home originally. There are some ways you can speed up this process by making more mortgage payments than you are required to. It is a good idea to speak with your lender about what your short and long term financial goals are and what type of mortgage product would be the best choice for you.

The bottom line on LPMI is it can be a good idea for borrowers who will stay in the home longer, primarily. Some banks do not want you issue LPMI because it is an extra cost for the bank up front. While it is off set by the higher interest rate, for some banks, they prefer to charge buyers PMI.

Is Home Refinancing a Thing of the Past, Where Do Americans Get Cash Now?

Interest rates for both traditional and cash out refinance mortgages are on the rise in 2018, with rates for firsts around 4.5%. The higher rates that have been coming due to better economic indicators and Federal Reserve rate increase hikes, have put a bit of a damper on refinances for the past few months.

What is the outlook for cash out refinances? Is it a thing of the past, or will people still do refinances in the coming years? Below is more information to consider to help you make your home refinancing decision.

Overview of Home Refinancing Loans

Refinancing your first mortgage can be a good idea if you can save interest and lower your rate. Refinancing with cash out may be a smart move if you can save on your rate and also pull out cash for things that you need. According to financial experts, you may want to consider a refinance in 2018 in these situations:

  • You can get rid of PMI: With a conventional loan, you are required to pay PMI until you have reached 20% equity. One of the most popular refinance products is the no PMI mortgage, because borrowers can get rid of the PMI payment monthly. Homes have been appreciating nicely in 2018 with 7% increases overall according to some surveys across the country. You could find yourself with more equity than you thought you would. If so and you are near 20% equity, refinancing to get rid of mortgage insurance can be a good idea. If you have an FHA-insured mortgage and are nearly 20% equity, consider a refinance into a conventional loan to escape mortgage insurance; you generally must pay mortgage insurance on FHA loans for life.
  • You can go from an ARM to a fixed rate mortgage: If you have an adjustable rate mortgage, you may want to go into a fixed rate loan with your refinance. This will provide you with more stability over time as far as your payment. But rates have gone higher since 2017, so you could find the rate is going to be higher with a fixed mortgage. Consider a 15 year fixed rate mortgage to score a lower rate, if you can handle the higher payment.
  • You are able to cut your rate by 1%. Many experts say it is worth refinancing if you can reduce your rate by 1%. Remember that every new loan you do incurs thousands in closing costs, so you really do not want to refinance your loan unless you can save a lot on the interest rate.

If you are in the following situations, you may not want to refinance right now:

  • There is too little difference between your current rate and new rate. Rates on first mortgages are 4.5% or higher right now. If you have a rate that is close to that, you will probably not want to refinance. You also should resist the temptation to refinance anyway and pull out cash. The major reason to refinance should always be to get a lower interest rate.
  • You want to pay off old debts. Some people like to pull out cash with a refinance to pay off debt. But you are transferring your unsecured debt to a debt secured by your home. If you fail to pay your mortgage, you could end up losing your home. Many people argue the only reason to pull out equity with a refinance is to do something that will pay you back, such as renovating the home or paying for college tuition. Buying investment property is another possibility.
  • The breakeven point is not in your favor: If the rate is not low enough, you may not end up saving enough money to outweigh the cost of refinancing. If your refinance saves you $100 per month and the refinance cost $4000, you have to pay more than four years to make the deal break even.
  • You have a small amount of home loan left to pay: If you only have a few years left on your mortgage, you may find there is little financial benefit to refinance now. You could get a lower monthly payment, but you will pay thousands in closing costs and fees.


The bottom line on home mortgage refinancing in 2018, especially when taking cash out, is to tread carefully. Rates are higher now and you may have a harder time saving money with a refinance after you account for closing costs. Another possibility is to consider a second mortgage instead of replacing the first mortgage. Your second mortgage rate could be in the 6% range, and that would allow you to access some of that built up equity at a still low interest rate.

It appears we are in a long term rising interest rate market, so for now, we expect to see fewer people taking advantage of refinances as the cost of borrowing money gets more expensive for the foreseeable future.

pmi loans

Double Digit Growth for Real Estates Dirty Little Secret. PMI Companies the Curtain Is Pulled Back.

Most Americans who pay for private mortgage insurance very month, also called PMI, do not like paying for it. PMI protects the lender against loan default for those who put down less than 20% when they bought the home. For most mortgage insurance companies, providing PMI is a very profitable business indeed.

Mortgage insurance premiums are pooled each month, very much like car insurance. They are then paid out to lenders who suffer a loss because of a home foreclosure. The amount of your PMI payment is rolled into the monthly payment on your mortgage. But it also can be collected every year, and even included in the interest rate to effectively mask the payment you are making.

Many experts in the mortgage industry think that mortgage insurance lenders are making too large profits these days. Also, they believe that lender paid mortgage insurance is especially devious; the interest rate you pay on the loan is effectively hiding what mortgage insurance costs you. Some people do not even know they are paying for PMI at all.

However, others point out that mortgage insurance companies do provide a legitimate service to Americans and to the housing industry as a whole. Mortgage insurance companies provide stimulus to the US housing market by reducing the risk for lenders to lend mortgage funds at over 80% LTV. This part of the market would largely dry up if mortgage insurance companies were not there.

Mortgage insurance is especially costly for borrowers with lower credit scores and lower down payments. For example, FHA loans are available to borrowers with only a 580-credit score, with a mere 3.5% down payment possible. These borrowers represent a higher risk for lenders, so it makes sense that this mortgage insurance will be more expensive and the company’s profits higher.

Just as with any insurance, profits happen when revenues are higher than pay outs. This was the case during the housing boom. But when the crash occurred, many mortgage insurance companies took a major hit. These days as of 2018, foreclosures are down, and the economy is relatively strong. So, mortgage insurance company profits are higher.

How PMI Works on the Lending Side

When a homeowner cannot pay his mortgage, the home will usually go into foreclosure. This will usually occur once the borrower is at least 90 days behind. In some cases, the lender may take the deed to the home in lieu of foreclosure. But for most cases, the home will go to auction. Other parties can bid for the property, but banks will usually bid whatever is owed and buy the home. With a conventional loan, the bank will then list the home to be sold. If it cannot be sold for at least the principal remaining on the home, the mortgage insurance company pays the difference. For instance, if the mortgage balance is $183,000 and the property auctions for $160,000, the insurance company pays the bank the difference of $23,000.

The same thing occurs for most government guaranteed loans, such as FHA. For instance, say that a home owner makes a 3% down payment on a $200,000 house and defaults after three years. There is $190,000 of the loan left to be paid. FHA will pay the bank that gave the loan $190,000. In a few cases, FHA will assume the property and try to recover as much as it can when the property is sold.

The Bright Side of PMI

Most Americans unite in their hatred of PMI and the profits that mortgage insurance companies make. But data shows that over time, paying PMI each month can be a good investment for homeowners. Paying for PMI means you will probably buy a home years sooner than you otherwise would have. According to the house price index at FHFA, home prices have gone up 3.5% each year since 1991.

In recent times, home prices have been going up 5% per year or more in many markets. By paying for PMI each month, you are making payments toward your future wealth. Each time you make a payment on your home, you are paying off a small part of the equity. PMI plays an important role here because it allows you to start building equity faster.

Also, many home owners find that they are able to cancel PMI after five or seven years. At this point, they have paid enough on their home to reach 20% equity. Or, they have enjoyed enough home appreciation through market forces to reach 20% equity. For many of them, the home may have appreciated at least 5% per year for several years, giving them tens of thousands of dollars in equity, while they only paid $5,000 or $10,000 in PMI payments. This is a good return on investment.

So, if you are upset about PMI company profits, we hear you, but in some circumstances, paying for PMI is not really a bad thing.



References: https://patch.com/california/lajolla/bp–are-mortgage-insurance-companies-set-to-earn-huge-profits & https://www.housingwire.com/articles/41669-mortgage-insurance-companies-struggle-to-keep-up-in-third-quarter


How to Make Your Mortgage Great Again?  Homeowners Guide to Stop Paying PMI

Private mortgage insurance (PMI) helps home buyers move into a home without putting down at least 20%. Some financial experts think paying for PMI is ok if it means you can move into a home years sooner and stop paying rent. But others say that PMI is an unnecessary expense and should be avoided at all cost.

Let’s Start with Really Helping Homeowners Know their Rights to Prevent Unwarranted PMI Payments.

To make America great again, some argue we should try to avoid paying for PMI as much as possible. If millions of people stopped paying PMI today, they would have thousands of more dollars in their pockets every year. That money could be injected into the economy with more purchases. So, it is definitely a goal worth pursuing!

Steps to Take to Avoid PMI

The first choice is to come to the closing table with at least 20% down. If you have 20% equity in your property, you will not need to pay for pesky mortgage insurance.

Another option for military veterans is to get a VA loan. You do not ever need to pay PMI on a VA loan. This military mortgage is one of the most popular no-PMI loans in the market today.

If you cannot do either of those, there are some other options. Some lenders have lender paid mortgage insurance or LPMI. It is similar to PMI, but the lender pays the cost. This will involve paying a slightly higher rate for the life of the loan. To pay your PMI for you, the lender will require you to pay as much as .75% more on your interest rate.

Consider this option with caution; if you are staying in the home for 20 years, you will pay a higher rate for every year. This adds up to tens of thousands of dollars in additional interest.

Another possibility is to use piggyback financing. In this situation, the buyer brings a 10% down payment, and takes out an 80% mortgage and a 10% mortgage. This is known as an 80/10/10 loan.

How to Stop Paying PMI

Once you have a PMI payment, you want to get rid of it as soon as you can, so you can put that money to use for other things – making America great again, remember?

Generally, you can cancel your PMI once the principal balance drops to 80% of the value of the home. This can be the original appraised value or the current market value.

There are some restrictions, however. Depending upon the lender and the PMI provider, you could be asked to show a history of on time payments. Usually, you need to show at least a year of payments that were on time. Also, you should not have a second mortgage on the home.

Lenders have requirements to meet as well. They are required by the Homeowners Protection Act of 1998 to update you each year on how you can cancel PMI. Lenders are required by this law to terminate your PMI when you have 78% loan to value. You do have to be current on your mortgage when you get to 78% LTV to have PMI taken away. If you are not current, the PMI will be terminated on the first day of the first month you are current on the loan.

The Homeowners Protection Act of 1998 also states that you can request PMI cancellation after you get to 80% LTV based upon the original value of the home. But in this case, you need to contact the lender to have the PMI removed.

What Does PMI Costs?

PMI costs vary depending upon the level of risk you present to the lender. The smaller the down payment, the higher the PMI costs will be. Generally, PMI costs from .30% to 1.15% of the balance of the loan each year. The rate you have is based upon the credit score. Other factors are the percentage of down payment and the term of the loan.

PMI costs are usually monthly and are divided into 12 installments per year. This is added to the mortgage payment each month.

Note that the cost of PMI can change every year. This is based upon the mortgage insurance provider and state laws. So you can check with your lender to determine what your PMI costs will be for the next year.

If you are worried about the expense of PMI, just remember that it is helping you to own a home much faster than you would have otherwise been able to. Also, just focus on paying down on your mortgage so that you can get to 20% equity. Once you have gotten there, you can request PMI to be removed. And once you have PMI off of your monthly mortgage, you will have an extra $100 or $200 per month to use as you wish, so that you can help to make America great again!


American Homeowners Unite to Eradicate Unwarranted Mortgage Insurance Payments

Most Americans want to buy a home, but many people hate paying for private mortgage insurance. You are required to carry private mortgage insurance (PMI) on a home loan if you do not have the cash to make at least a 20% down payment on a home. PMI will cost you between .20% to 1.5% of the loan balance each year, depending upon your FICO score, loan term and down payment. This cost is divided into 12 monthly payments and is added to your mortgage each month.

PMI monthly payments can easily add up to $1,500, $2,000 or more per year. That is the reason that many Americans want to eradicate mortgage insurance as much as possible. If you want to get rid of your PMI payment or avoid it entirely, keep reading and learn how.

Who Needs PMI?

Lenders know that a borrower who puts down a lot of money on a home is much less likely to default. It has been found that people who put down at least 20% down on a home are statistically much less likely to be foreclosed eventually. Many first-time home buyers do not have equity in a property to rely on for a down payment and cannot easily come up with 20% down. So, it is necessary for them to pay for PMI. It is estimated that as many as 50% of home buyers today have mortgages with PMI. Most of these loans were made by people who put down between 5% of 15%.

How Do I Avoid PMI?

The best way to avoid paying for mortgage insurance is to save enough money to put down 20%. This may require you to set your sights lower on your new home and buy something smaller and simpler in a more affordable neighborhood.

Another option is to ask a relative or close friend for a financial gift to help you make the 20% down payment. Many mortgage companies will allow you to receive a financial gift to make your down payment. The only requirement generally is a letter from the person stating that it is a gift, not a loan.

Still another alternative is to opt for lender paid mortgage insurance, or LPMI. This means the lender will pay for your PMI, in exchange for a slightly higher interest rate. The only caution here is if you intend to live in the home for many years: You will pay a higher interest rate for every year of that loan, which can amount to tens of thousands of dollars in extra interest payments. LPMI is a better deal if you plan to sell the home within a few years.

Also, if you are a military vet or active military, you may be eligible for a VA loan. These loans are very affordable with low interest rates, and no PMI is required. Many people can even get 100% financing.

How Do I Get Rid of PMI?

So, what to do if you already are paying for mortgage insurance? You have several options. First, continue to make mortgage payments until you have at least 20% equity in the property. You can review your loan’s amortization schedule to determine when you have this amount of equity. You also may hit 20% equity if the home has appreciated significantly since you purchased it. You may need to pay for an appraisal to show your lender that you have 20% equity and PMI should be cancelled.

When you achieve 20% equity, you should request PMI be cancelled in writing with your lender. It is necessary to have made on time payments in recent months to have PMI cancelled. Also, lenders are required by federal law to cancel PMI when you have 78% loan to value, or 22% equity. This should be done automatically.

If you have an FHA loan, you may have to pay for mortgage insurance for life, due to recent FHA regulatory chances. Your only option in this case is to refinance into a conventional mortgage when you reach 20% equity.

Legislative Update on PMI

The Consumer Financial Protection Bureau or CFPB has been providing recent updates and information about cancelling PMI for homeowners. According to the CFPB director, it is not unusual for mortgage companies to try to bill borrowers for unnecessary PMI payments. CFPB has stated that it is monitoring mortgage servicers to ensure that no consumer is being billed unnecessarily for mortgage insurance.

The takeaway on mortgage insurance is that it helps millions of people buy a home much faster. So that is a good thing. But it comes at a considerable cost, so you are wise to try to eliminate PMI as soon as you can. Americans can disagree on many things but trying to get rid of PMI is definitely something most of us can agree on!




Who Governs My HOA?

Having Problems with a Home Owners Association?  They do what they want when they want and when I complain it goes on deaf ears…

In the 1960s, there were only 500 HOAs in the US. But they have gotten much more numerous since then. According to the Community Associations Institute, there are 62 million US residents who live in 309,000 HOAs as of 2010. That is an enormous increase in only 50 years. What is the reason?

The primary role of a homeowner’s association is to be an organization of property owners that administers all of the rules and covenants of the home subdivision. If you live in a community with an HOA, the rules will affect and limit what you can do to your property.

This is good news for many people; HOA covenants and bylaws generally preserve the value of your property by ensuring that no one does anything distasteful to a property, such as paint it a strange color or park too many commercial vehicles on the road. The sad news is that you may not always be able to do whatever you want to your property. Some HOAs can be difficult to deal with, so if you are having issues with yours, you should keep a few things in mind outlined below. These tips can be useful in some cases to deal with problems with HOAs and other neighbors.

Understand Rules and Bylaws of HOA’s

You should know your HOA’s bylaws and follow them to the best of your ability. It also is a smart move to read covenants, rules and deeds to find things that are arbitrary, such as keeping a vehicle in the driveway. You might be surprised, but it is not unheard of to have some HOAs turn their sights onto certain types of vehicles parked in a driveway, such as large pickup trucks. Other common covenants have rules about fences and the shade or color of your home.

Expect the Best

HOA’s are very common today, so there is sometimes controversy about how they work with homeowners and protect them from problems. But a 1999 poll by the Community Associations Institute found that 75% of people who lived with an HOA were satisfied. However, in 2007, 48% of people in HOAs in Los Angeles stated that their HOA was a headache.

To see how happy, you are with your HOA, you might take a look around your neighborhood. Are lawns trimmed and neat? Are there few cars parked on the street? Are the neighborhood facilities in good repair? Would the general appearance of the neighborhood attract buyers? The HOA is generally doing a respectable job if the community is suited to your wants and needs and you are treated fairly by the board.

Talk to Other HOA Members

A major advantage of living in a community with an HOA is that you can become friends with other neighbors. You might not know all of them, but they are paying the dues you are and have to adhere to the same rules.

Getting to know your neighbors can be beneficial if the HOA starts to assess fees and handing out violations. By checking with your neighbors, you can learn if you are the only one being targeted. In 2010, a community in Florida got together and fought the HOA because it appeared to be using aggressive tactics to collect HOA dues. The residents became aware of what others were going through and a legal investigation was launched.

It also helps to know other neighbors because sometimes it will be an individual in the neighborhood that brings attention to an alleged violation. If you were to hang your clothes to dry in a $1 million dollar home subdivision, you could face fines if someone turns you in. But if you are friends with your neighbors, they may talk to you before reporting you.

Get Involved with Your HOA

It always helps to avoid problems with an HOA by being involved in it yourself. Many HOAs require there to be an annual meeting each year to elect a board of directors. This is usually open to paying members. Some states will place limits on what can be discussed at the general meeting, while others will allow residents to talk about whatever they want.

Either way, it is beneficial to attend meetings and to hear what is happening in the community. If the fees are going to be raised, it helps to know as soon as possible. But the biggest reason to be a part of the HOA meeting process is to have a say about the board of directors. If the board is showing any neglect or abuse of the neighborhood, you may want to get a new board.

Pay Fines, Other Options

If you are fined for an HOA violation, you can just pay it and be done with it. This could be the best move. But you also can ask for a variance which is an exception to the covenant or deed by which the HOA functions. The HOA may not want to bother with fighting you and the variance could be granted. But the HOA may have a hearing to which other homeowners may be invited to discuss if the variance should be granted.

The last option is to take legal action. You could win an HOA lawsuit, but it is not unusual for homeowners to go to court over a few hundred dollars in fines, and come back owing that PLUS legal fees in the thousands of dollars.

Do not just not pay the fines, or you could be foreclosed upon.



References:  https://home.howstuffworks.com/real-estate/buying-home/10-tips-dealing-with-hoa.htm and http://realtormag.realtor.org/sales-and-marketing/feature/article/2015/09/how-spot-bad-hoa


Do Bond Programs for Down Payment Assistance Really Exist in Your Area?

The housing market is hot in 2018. Interest rates are creeping up. Signs are the economy is going well, so it is likely that interest rates will rise in the next year. It is understandable that many people who are renting want to get in on owning a home before rates get too high. But what if you do not have the down payment to get a loan?

Today there are down payment assistance grants available in some cities and counties. There also are interest free 2nd-mortgages and other special loan options that can help you with a down payment.

Down payment assistance is available with many state housing finance agencies and local housing authorities. The money is often available because many Americans think it is too hard to get or they do not qualify. It is assumed that down payment help is only for the very poor, but this is not always true. These bond down payment assistance programs are typically for working people with an average or above average income but lack the funds for a down payment.

Down payment assistance may be offered as a grant that need not be repaid. Buyers may be able to earn up to 140% of the median income in the area and still get a grant. For example, in Orange County CA, you can earn up to $100,000 per year and get a grant of up to 5% of the purchase price.

The program in Orange County is not just for people buying for the first time; it is a grant and does not need to be repaid. You do need a 640-credit score, and it even can be obtained with a refinance. Also, your debt to income ratio cannot be higher than 50%. Different assistance programs will have different criteria, but this one in California is typical.

Another example is the My First Texas Home program that offers home loans with low payments and down payment and closing cost help. This can be up to 5% of the loan and is very helpful for first time buyers. Buyers also can increase the benefits of home ownership with this program by doing this loan with a Texas Mortgage Credit Certificate. This will give you a dollar for dollar reduction on your federal taxes. This can save you hundreds per year on your federal tax bill.

Another option in Texas is the down payment assistance program that is available through the Travis County Housing Finance Corporation. It will help you to get a home with an FHA, VA, or USDA loan in Travis County and Austin. A grant of 4-5% is available that does not need to be paid back to help with the down payment and closing costs.

Another option is a down payment assistance loan that may be a second mortgage, or a silent mortgage that only is paid when the home is sold, or the first mortgage is fully paid. On average, buyers can get from $5000 to $20,000 in help, depending upon their location and finances. But in high cost areas, it is possible to get a loan for up to $100,000 with very favorable repayment terms.

Some of these programs are made to work with FHA loans, but others may allow you to get a conventional loan. You also could have to get a loan from a specific lender in your area to qualify. But not all lenders like to work with these programs because they are not as profitable. If you are looking at a down payment grant or loan, talk to your lender to see if they will work with you.

There also are some lenders that may offer down payment assistance programs to help the first-time home buyer. First time buyers may struggle with the down payment because they do not bring any equity to the deal from the sale of another property.

Lenders say it is a common myth that there are no mortgage programs for people that do not have a 20% down payment. There are many options for people with much less to put down.

For example, many lenders that are approved by FHA to issue loans can give many people a loan with only 3.5% down. It is true that you still need to come up with some money, but you may find a down payment assistance program in your county that can help you with that. Another possibility is to get a gift from a friend or relative, which is permissible under FHA rules. If the person is giving it as a gift and does not expect repayment, you can get a home with essentially 100% financing.

If you need help with your down payment, check around in your city and county first, because there are plenty of programs available.






Should I Ever Get a Mortgage with PMI?

2018 is still looks like a good time to buy a home with less than a 20% down payment. More than ever in the last several years, mortgage lenders are offering low down payment loans, with loan approval rates markedly higher than 2010.

For buyers who have less than 20% to put down, though, you need to think about private mortgage insurance or PMI. In most cases, PMI is required on all conventional loans with less than 20% down. PMI is a required insurance policy for conventional loans that insures the mortgage lender against loss if you default.

PMI differs from the mortgage insurance needed on other loans, such as FHA mortgages. Mortgage insurance on FHA loans can be costly as the premiums are higher than Fannie Mae and Freddie Mac. There also is a separate mortgage insurance program for USDA home financing.

Many Americans hate the idea of paying PMI. But is PMI good or bad? It is neither, really. Mortgage insurance IS an extra monthly cost, but it helps millions of people qualify for a loan years before they otherwise could. Only a small percentage of Americans can afford to put 20% down on a home, and it is even smaller for first time home-buyers. Let’s consider both sides, the home loan that requires mortgage insurance and the no PMI mortgage.

Should you ever get PMI with a mortgage? There are cases where it does make sense to choose a home loan with mortgage insurance.

When PMI Is Required

PMI is needed when the buyer puts less than 20% down on a conventional loan. Conventional loans are backed by Freddie Mac or Fannie Mae and are available through major home lenders such as Wells Fargo, Bank of America and JPMorgan Chase, etc.

To understand why PMI is needed on a loan with less than 20% down, it helps to review the mortgage default situation. The homeowner is not making payments on the home, and at least three payments were missed. This is creating a big loss for the lender. But state laws often delay when the homeowner can be evicted. It might be one or two years before the home can be reclaimed. During this period, the home could have damage, such as neglect, fire or flood. It probably is showing the effect of poor maintenance.

When the home is sold in a foreclosure auction, it probably means the lender has a big loss on its hands. On average, lenders lose about 20% of the value of the property during the default and foreclosure. So that is why it is a requirement to put down 20% to avoid PMI. Anything less than 20% down is a risk to the lender. PMI protects them against that loss.

Types of Private Mortgage Insurance (PMI)

There are three major options for paying for PMI. The first is the single premium option that means you are paying a lump sum when you close the loan. This will cover the cost of PMI for the entirety of the mortgage.

The second option is lender paid mortgage insurance or LPMI. This does not require you to make monthly insurance payments but your rate will be increased by the lender to cover the risk.

The third option is monthly premium PMI which is how most of us pay for it. The annual cost of your PMI policy is split into 12 payments and collected monthly.

All of these options have advantages. If you plan to stay in your current loan for a long time and expect home prices to stay flat or go up moderately, you may want to opt for the single premium plan. But if you want to move or refinance in a few years, you may want LPMI. This means you are only paying the slightly higher rate for a limited period.

For most buyers, monthly PMI is probably the best bet. Payments are monthly and will cancel once you reach 20% equity through payments and/or appreciation.

Cancelling PMI

A lot of buyers think PMI is stupid and a waste of money. But it lets you buy the home with much less than 20% down. Do you have other things you could do with that money? Most people do. You could use some of that money to pay for repairs on the home, keep an emergency fund or put into investments. Access to PMI lets more people buy homes, and in particular, lowers entry barriers for the first-time homebuyer who has no equity.

PMI does add to your monthly payment, but that is ok for most people. They can afford PMI payments; what they cannot often afford is a 20% down payment.

Plus, once you have paid down the balance to 78% of the home’s original purchase price, you can have the PMI cancelled automatically by law. You also can ask the lender to cancel it once you reach 20% equity, but they may wait until 22% equity.

To qualify for PMI cancellation, you have to have made your payments on time. Otherwise, the lender may balk at cancelling PMI.

Overall, getting a mortgage with PMI makes sense for people who would struggle or find impossible putting 20% down on a home, especially first-time buyers.







lender paid mortgage insurance

Lender Paid Mortgage Insurance vs FHA

People who want to buy a home with less than 20% down have plenty of options in 2018. But doing so will usually require you to pay for mortgage insurance. Called PMI for conventional loans and MIP for FHA financing, mortgage insurance is one of those expenses of life you may not like but is necessary for many people. Mortgage insurance is there to reimburse the lender if you fail to pay your loan and default on it. The lender is paid back some of the loan amount. This lowers their risk on lending to people who put less than 20% down. Unfortunately, mortgage insurance can cost more than $1000 per year and sometimes much more, depending upon the size of the loan, type of loan, and your credit.

Let’s Compare FHA MIP to Lender Paid Mortgage Insurance

If you are putting down less than 20%, one of your options instead of paying mortgage insurance each month is to use lender paid mortgage insurance or LPMI. With this program, you will pay a bit higher interest rate each year for the pleasure of not paying mortgage insurance. You can expect to pay an interest rate that is .5% more than the regular rate that other mortgage products offer. But there are several things to think about if you are going to possibly get lender paid mortgage insurance.

On the plus side, you will enjoy a lower mortgage payment each month. Your payment will include your principal, interest, homeowner’s insurance and property taxes, but no mortgage insurance. This will put at least $100 or $200 more in your pocket every month – not a bad deal.

Second, you are having to put less money down on your home. This is especially important for first time home buyers who are not bringing equity to the table from another property. Paying a higher rate for LMPI can make sense in many situations, and it is allowing you to buy a home with a fraction down of what is usually required. That money can be used for fixing up the home or other things.

On the down side of LMPI, you will pay a higher interest rate. Expect to pay at least .5% more and sometimes more than that. This will add up over the years of the loan to be a lot of money. If you plan to stay in the house for 10 years, you will be paying a higher rate the entire time. But if you are going to sell the home in five years, paying a higher rate may make sense for the pleasure of not paying monthly mortgage insurance. Many experts say putting down 5% or less and staying in the home less than 10 years can make sense for paying LPMI.

Also, the economy in early 2018 is doing well, and interest rates are on the way up. We already are seeing rates in the mid 4% range. This means that a mortgage with LPMI tacked on is going to cost you more. If you plan to stay in the home for a long time, you may have difficulty refinancing to a lower rate later because you are paying the higher LPMI rate. The other disadvantage of paying LPMI is that you will pay more if you have average credit below 700. You can however buy points when you close the loan and lower the rate.

LPMI will be with you for life if you decide to stay in the home for 20 years, so keep that mind. LMPI generally is a good option for people who are not making their current house their permanent home.

Other Low-Down Payment Options

If you are unsure if you want to have the higher rate of LPMI, you can consider other government backed loan products that allow only a 3.5% down payment for many people. One of the most popular programs is the FHA loan. This program requires a mere 3.5% down payment for a 580-credit score. FHA loans carry mortgage insurance as well, but this allows you to pay a lower rate than you can usually get in a conventional loan.

Note however that you will probably have to pay for mortgage insurance for at least 11 years if you put down 10% or more, and for the life of the loan if you put down less than that.

Mortgage insurance with FHA loans costs more than with conventional loans. So, you could end up with a payment that is more than with LPMI, even though FHA loans generally carry a lower rate.

The Skinny on LPMI and FHA

LPMI can be a good option for buyers who want to stay in the home for 10 years or less. Beyond that, you will be paying mortgage insurance when you already have 20% equity. Your only option is to refinance that loan, so you no longer are paying the higher LPMI interest rate.

FHA loans can be a desirable choice if you want to put little money down because you will have a very low interest rate. FHA mortgage insurance is still with you though, and often for the life of the loan. So, you would also need to refinance out of the loan to get rid of mortgage insurance. But FHA loans are great for people with lower credit scores as you can get a rate well below market. So deciding which one to choose depends upon your finances, credit and long term plans for the home you are buying.

References: Learn About Lender Paid Mortgage Insurance (LPMI). (n.d.). Retrieved from https://www.thebalance.com/learn-about-lender-paid-mortgage-insurance-lpmi-315657