Private Mortgage Insurance Guidelines On Conventional Loans

What Are Private Mortgage Insurance Guidelines On Conventional Loans And How Does It Work: Gustan Cho Associates offer a wide range of mortgage products, We have some of the most competitive conventional mortgages on the market, We also have access to Fannie Mae and Freddie Mac specialty products such as HomeOne, HomeStyle, and HomePossible, Most Americans think you need a 20% down payment to enter into a conventional mortgage, But that is a myth, In this blog, we will detail the ins and outs of private mortgage insurance and conventional mortgages, In this article, we will cover and discuss Private Mortgage Insurance Guidelines On Conventional Loans.

What Is PMI And How Does It Work On Conforming Loans?

Private mortgage insurance, often abbreviated as PMI, is an insurance policy put in place. PMI is to protect the lender against default when a borrower uses a conventional mortgage with less than a 20% down payment. There are numerous ways to pay private mortgage insurance. In this article, we will go over both lender-paid and borrower-paid mortgage insurance in detail.

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Cost Of Private Mortgage Insurance For Borrowers

How much does mortgage insurance cost? Just like interest rates on your mortgage, there are many factors that decide your mortgage insurance rates. The main factors are credit score and down payment. The higher the credit score, the lower the private mortgage insurance premium will cost. The more you put down as a down payment but lower the private mortgage insurance premium will cost. The rate of your mortgage insurance premium will rise based on loan-to-value. For instance, putting down between 10% to 15% will have a lower premium compared to putting down 5% to 10%. The premiums will lower in rate every 5% increase in down payment, or every 5% chance in loan to value (LTV). Even putting down 5% vs 3% (for first-time homebuyers) will have a more favorable mortgage insurance premium.

Borrowers Paid Private Mortgage Insurance On Conventional Loan

Borrower paid Private Mortgage Insurance Guidelines:

• Borrower-paid mortgage insurance is the most common type of mortgage insurance
• The borrower has the opportunity to pay it as borrower-paid monthly mortgage insurance (BPMI) or borrower-paid single premium (BPSP)
• Depending on how long you plan on staying in the mortgage loan, will influence which premium is better for you
• Monthly mortgage insurance means the premium into equal monthly payments every month until your loan reaches 80% loan to value
• Single paid mortgage insurance means you pay a lump sum at closing that pays your entire mortgage insurance premium at once
• One of the highly skilled loan officers of Gustan Cho Associates will help you crunch the numbers for your mortgage insurance scenario
• This is an incredibly confusing topic that requires professional assistance

Many loan officers do not take the time to explain the mortgage insurance options to their borrowers. You may be leaving money on the table.

Lender Paid Private Mortgage Insurance On Conventional Loans

Lender-paid mortgage insurance: Lender-paid mortgage insurance simply means the lender will pay your mortgage insurance premium. Sounds wonderful, right? Of course, nothing in this world is free, the lender simply raises your interest rate on the mortgage to cover the cost of the mortgage insurance premium. With lower credit score conventional mortgages, this usually is not an option. Once again mortgage insurance premiums are cheaper with higher down payments and higher credit scores

Monthly Payments On Private Mortgage Insurance

 

This option usually gives you the lowest overall monthly mortgage payment. So, for payment-conscious borrowers, this is a great opportunity to increase your purchasing power.

EXAMPLE:

• 720 credit score 5% down payment Conventional Mortgage (THIS IS AN EXAMPLE – ACTUAL RATES WILL VARY)
• Loan Amount – $200,000
• Rate – 4%
• Mortgage insurance coverage – 30%
• Principle and Interest – $955
• Borrower paid monthly mortgage insurance – $122 a month

Total payment – $1117 (without taxes and insurance)

Lender Paid Single Premium Private Mortgage Insurance

Lender Paid Single Premium: The lender will increase the rate to cover the cost of the mortgage insurance premium, Rate will be raised to 4.875% to cover the premium, Which has a monthly payment of $1058 (without taxes and insurance), This has a savings of $59 a month compared to borrower-paid, You will need to let your loan officer know exactly how long you plan on staying in this mortgage, Then you can make an educated decision on which mortgage insurance premium suits your needs better

(THIS IS AN EXAMPLE – ACTUAL RATES AND COVERAGES WILL VARY)

Mortgage lending is a foreign language to most Americans. There are many different aspects of a loan that are factored into your qualifications Mortgage insurance is one of the more confusing subjects around conventional loans. As you can see, Gustan Cho Associates are experts in mortgage insurance.. Remember, there are many ways to pay for mortgage insurance, do not leave money on the table. For any general mortgage questions please contact Gustan Cho on (800) 900-8569. You may also email Mike directly at gcho@gustancho.com. We are available seven days a week including holidays to answer your mortgage questions. We look forward to helping you!