What if knowing three simple facts could save you thousands and help you ensure your mortgage is in the hands of a true mortgage pro? Valuable info, right?
Good, because by the end of this post you will know those facts and be armed with some specific questions you can ask your mortgage lender that are designed to separate a talented loan officer from run-of-the-mill paper pusher.
What is Private Mortgage Insurance?
Private Mortgage Insurance (PMI), is a tool used to protect mortgage lenders’ against loss on loans that have higher risk factors. Usually, your loan to value is the trigger. Over 80% LTV and you pay mortgage insurance, put 20% down and you don’t.
Simple enough, right?
Since you are reading this, I assume one of two things: either you don’t have 20% to put down OR you are weighing the cost of mortgage insurance versus the cost of liquidating assets.
There is a problem, though. You aren’t always getting the full PMI picture from your mortgage lender. You might not have the information needed to make an informed decision and that lack of info could cost you thousands.
Loan-to-value is not the only risk factor that affects the price of your PMI. That’s right, your private mortgage insurance is a sum of parts. Factors such as debt to income ratio, credit score and property type also play a role in what you will ultimately pay.
Monthly mortgage insurance is not the only option. You also have two other PMI options: single premium MI and lender-paid MI. Many lenders only quote monthly because they lack the creativity and ability to truly analyze the big picture.
- Single Premium Financed MI – might be the best kept secret in the industry. It goes back to the reasons listed above, there’s a lack of understanding of how it works and when to use it. Essentially, single premium financed mortgage insurance works the same way as the upfront mortgage insurance on an FHA loan; it’s financed into the loan balance.
- Lender Paid MI – was big in the before the crash. The concept is simple, the lender absorbs the risk by charging a higher rate. How much higher, you ask? That depends on loan-to-value and your overall strength as a borrower. The higher rate is for the life of the loan, but it still makes sense for some borrowers because there are tax benefits from paying more interest, especially if you exceed the income threshold which allows you to deduct your PMI.
- Monthly MI – doesn’t need a lot of explaining. You pay it every month until you can drop the mortgage insurance from your loan. To drop the MI you need to reach 78% or less on your loan to value.
One catch, mortgage lenders require you to wait at least two years before you can even attempt to drop monthly MI. Even after two years you’ll have to show the value increase with a fresh appraisal.
Keep your fingers crossed and expect push-back from most mortgage servicers. Eliminating your mortgage insurance is a broad topic. So broad we dedicated a full post on what your options are for getting rid of MI.
There are multiple mortgage insurance providers, most lenders can shop. Mortgage insurance providers underwrite the loan much like your lender does. It is prudent for them to have multiple providers in case the primary provider does not want to insure the loan. This happens quite frequently, actually, and usually behind the scenes.
If you have a strong scenario, and create less risk for the insurer, then you likely have three to four providers willing to insure your loan. The differences in their mortgage insurance rates are generally minor, but it all counts, right?
Mortgage lenders in 2014 generally offer similar product lines. The key to getting into the right loan is finding a mortgage professional with talent. One that is experienced with the intricacies and nuances of researching and find the best avenues for their clients. One that takes the time to analyze your scenario and explain their differences in plain English.
A top-notch mortgage professional lays everything out there for you to see, gives you the pros and cons, and allows you to make the best choice for your financial well-being. That process starts with a thorough explanation of how key variables, like mortgage insurance, will come into play.
If you are currently in the mortgage process and haven’t had your mortgage insurance options thoroughly explained you need to ASK. If the answer lacks depth then maybe it’s time to find a more experienced or more diligent mortgage expert.
If you would like to work with me directly for your mortgage needs, call me at 855.644.LOAN, 855.644.LOAN (5626) or email at [email protected]
You may also like to read – How to eliminate your FHA and Conventional Mortgage Insurance