As we all know, on any conventional loan that has less than 20% down payment, Private Mortgage Insurance( PMI) is required by most lenders. PMI is a policy provided by private mortgage insurers to protect lenders against loss if a borrower defaults on the mortgage. A borrower could put down as little as 5% down payment to obtain mortgage insurance on a conventional loan. PMI on conventional loans also discontinues once the loan balance reaches 78% of the equity in the home. There are a few types of mortgage insurance that are available to most borrowers. Not just the customary mortgage insurance paid monthly by the borrower in their monthly mortgage payment, as we are all aware of, but a few other options. I have listed these options below. 1. Borrower Paid Monthly- Borrower makes monthly PMI payments which are incorporated in their monthly mortgage payment. PMI will discontinue once the loan balance reaches 78% of the equity in the home. 2. Single Premium Financed- Mortgage Insurance is paid upfront by the borrower and will be added to the base loan amount(financed). The borrower does NOT have to bring this amount to closing and the borrower will NOT have a monthly PMI payment, since its paid upfront and financed into the loan. 3. Single Premium Borrower Paid- Mortgage Insurance is paid upfront by the borrower and will be added to their closing costs. The borrower does have to bring this amount to closing and the borrower will NOT have a monthly PMI payment, since its paid upfront at closing. 4. Single Premium Lender Paid- Mortgage insurance is paid upfront by the Lender. This amount is added to the borrowers closing costs, but is credited back by the Lender, since they are paying for it. This may result in a slightly higher mortgage rate to the borrower than the other options listed. The borrower does not have to bring this amount to closing, and the borrower will not have a monthly PMI payment. 5- Split Premium Borrower Paid- Mortgage insurance is both paid upfront by the borrower and also paid in a monthly payment. The monthly PMI payment will be lower, since a portion is being paid upfront by the borrower. This split amount is added to borrowers closing costs.The borrower will have to bring their share of upfront PMI to closing and will have a monthly PMI payment, but will be lower than option 1 listed. 6. Split Premium Lender Paid- Mortgage insurance is both paid upfront and also paid in monthly payment. The upfront amount will be paid by the Lender, and the monthly payment will be paid by the borrower. The upfront PMI amount is added to borrowers closing costs, but is credited back to the borrower by the Lender, since they are paying for the upfront PMI. The borrower does not have to bring the upfront amount to closing, but will have a monthly PMI payment. Again, the monthly payment will be lower than the amount for Option 1. I hope this helps you when discussing with your clients, and should you have any questions, please do not hesitate to contact me. Dominic DiGrazio | Branch ManagerResidential Home Funding Corp. 60 Route 46 East, 2nd floor | Fairfield, NJ 07004Main: (973) 575-1550 ext. 10 |Cell: (973) 356-5333 | Fax: (888) 760-1943NMLS # 204838 | Company NMLS # [email protected]
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