Private Mortgage Insurance (PMI) Options Available Today
With less than 20% down on a conventional loan today you are going to have to have some kind of mortgage insurance as part of your loan. In this post I will outline some of the options available to day for private mortgage insurance.
First of all, with the rise in mortgage insurance premiums for FHA loans, conventional loans with mortgage insurance are a very attractive option. Conventional loans do not have the 1.75% upfront mortgage insurance that all FHA loans require. Conventional loans will only carry a monthly mortgage insurance premium that is often less than the 1.25% monthly mortgage insurance premium of FHA. Also, with conventional loans, you are only required to have the monthly insurance on your mortgage for two years if you pay the balance down below 80% of the original purchase price. With FHA you have to have the monthly mortgage insurance for five years minimum and pay the loan balance down to 80% of the original purchase price before it goes away.
With conventional loans today, the cost of mortgage insurance will be highest at the minimum of 3% down, and will go down as the down payment increases from 5% to 10% to 15% down. 10% down is the sweet spot where mortgage insurance is very low, yet 10% is a lot less down than 20% down. The cost of mortgage insurance also depends on your credit score, the higher your credit score the lower the mortgage insurance premium will be. Keep in mind, mortgage insurance is not permanent, it will drop off after you have had it for two or more years AND the loan balance has been paid down to 80% or less than the original purchase price.
Below are some of the options with private mortgage insurance today:
Borrower Paid Mortgage Insurance: this is traditional mortgage insurance where there is no upfront mortgage insurance and a mortgage insurance premium is paid monthly by the borrower
Hybrid Mortgage Insurance: this has a 1% up front mortgage insurance that is rolled into the loan and a reduced monthly mortgage insurance premium. A seller credit or lender credit can sometimes pay this up front portion, leaving you with a very low monthly premium.
Lender Paid Mortgage Insurance: in this case the mortgage insurance is built into the interest rate. There is no monthly mortgage insurance premium, but the rate is slightly higher. A benefit of this is you can write off from your income taxes the interest of the higher rate, where you cannot many times write off mortgage insurance
Financed Single Premium: In this case a lump sum is financed into the loan balance to cover the mortgage insurance premium and there is no monthly mortgage insurance. Like the hybrid option, a possibility is the seller, Realtor or lender could cover this single premium with a credit thus giving you a loan with no mortgage insurance at all.
I hope this helps you understand the mortgage insurance options available today a little better. if you have any questions about mortgage financing today please contact us.