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Different Kinds of Mortgage Insurance (PMI)

New House PMIMost folks want to avoid PMI… but they don’t realize that they are happily paying a “kind” of mortgage insurance no matter what kind of loan they are getting!

Mortgage Insurance is not the insurance that covers you if you die, or are disabled and can not pay the mortgage… it’s the insurance that protects the BANK in the event you go into foreclosure.

Given the recent UP TICK in foreclosures, you can see why banks are requiring higher coverage amounts!  If you are applying for a Conventional mortgage, and you are putting more then 20% on a property you plan to live in, you avoid this additional insurance…

New House PMIIf not, well, there are some cases whereby you can get it Lender Funded (meaning the rate is higher to cover the cost) or you might be offered secondary financing (often called a 80-10-10). OTHERWISE, you’re stuck… but it’s often tax deductible, and PMI is what’s keeping the mortgage wheels rolling, so play along!

If you are applying for a FHA mortgage - you're insurance premium is now 1% of the loan amount.  In addition to this, FHA charges an annual premium (which is charged monthly) based upon a rate of 1.15% of the total loan amount, if you are making a minimal downpayment of less than 5%.  For more information on the FHA PMI (or MIP), please click here.

USDA and VA loans both have Guarantee Fees.  These fees are charged by the respective agencies – but I’ve always considered them as the “insurance” collected to cover the agency in the event of a default on the mortgage.  The main difference between the Guarantee Fees at VA and PMI (or MIP) is that there’s no MONTHLY fee (plus they call it a fee, not insurance)!  

USDA has a small monthly fee, but if you've used your VA Eligibility one time - it still might be cheaper to go with USDA.

If you have additional questions about MIP, PMI or Guarantee Fees, CALL US!

Steve and Eleanor Thorne, Mortgage Banker in Cary 919-649-5058

Originally Posted at NCFHAExpert - Different Kinds of Mortgage Insurance

Comment balloon 2 commentsEleanor Thorne • February 10 2012 03:58PM

Comments

Eleanor -- the one problem with the USDA "guarantee fee" is that the monthly payments for it are now perpetual with the loan.  In other words, if you take out a 30 year USDA loan, and pay it as scheduled, you will be paying that addional monthly "insurance" payment for all 360 months.

Also, for those who have used their VA benefit, if they then sold that house, and the balance was cleared, they can now use their VA eligibility again.  If they move out of the house and rent it out, and then refinance it to lower the payments - and use a conventional or FHA loan, they could then again use their VA benefits to buy another home to live in.  There are lots of other scenarios, where a veteran can use their VA eligibility multiple times (just not at the same time.)

Posted by Steven Cook (No Longer Processing Mortgages.) over 7 years ago

Eleanor, You explained PMI very clearly.

Posted by Connie Harvey, Realtor - Nashville TN Real Estate (Pilkerton Realtors) over 7 years ago

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