Tag Archives: upfront mortgage insurance

What Is Principal Mortgage Insurance

Here is the thing you are basically forced to buy and pay for private mortgage insurance or PMI or principal mortgage insurance with the condition that you put down less than 20 percent on your home. It gives your financial institution an opportunity to recover its losses in case you face a dilemma at the time of repayment.  At the time of the boom years, majority of home buyers did not even bother with it since there were loans with 100% financing well those days are over now.  Not to mention as of now in 2013 FHA loans the mortgage insurance is for the life of the loan since FHA took so many losses.

The guidelines for private mortgage insurance on conventional loans usually allow you to request it be cancelled at the time of the balance of your mortgage when equals 80 percent of your house value.  Now this is not automatic and you will have to request an appraisal to verify the value but it can be done.  In case if you only put 10 percent down and your house values has dipped a bit or more than it make take some time in achieving the 80 percent mark. Nevertheless, simply because the values of your place has decreased, it doesn’t suggest you can’t get rid of PMI within a short time frame.   You can always make extra payments to the principal to help pay down your mortgage as well.  Fact of the matter is that you don’t qualify for automatic private mortgage insurance revocation until the mortgage balance reaches the figure of less than 80 percent loan to value.

The problem is that usually the insurance is a few hundred a month so that is an extra expense that does the home owner no good other than allowing him to get the home loan.  One option that a buyer may have is paying an upfront mortgage insurance that can run about 2 % of the loan amount.  But that is a one time fee and its paid at the time of purchase usually reserved for good borrowers.  So for example on a 200k loan that may be 4k upfront but it can sometimes be financed into the loan BUT REMEMBER NO MONTHLY INSURANCE PAYMENT.  But same scenario for example on a FHA loan you have to pay 1.75 % upfront and then 1.30 % monthly.  So on a FHA loan that is $3,500. up front and then every month $216.67 EVERY MONTH.   But again every scenario is different and the conventional is usually at least 5% down payment vs. the 3.5% down payment.

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Should You Get A FHA Loan Or A Conventional Loan ?

Robert asks…

Is FHA worth it now for the house I want or should I wait and get conventional?

I can afford both. If I go with FHA I still want to put down 15%+ to keep the payment lower. But if I went conventional I’d go 20% down but my DTI comes into play which is where I’m on the cusp of not getting approved via conventional because of my DTI.

admin answers:

I think that you should definitely consider the conventional loan. If you make a 20% down payment, then you will not need mortgage insurance.

A FHA loan will include both upfront mortgage insurance as well as monthly mortgage insurance payments. In addition FHA premiums are set to increase in April 2013. (Cancellation policy will change in June 2013).

It is not clear why you would qualify for a FHA loan (with Mortgage Insurance payments) and not qualify for a conventional loan. The DTI requirements for a FHA loan are 31% (upfront DTI which includes all housing related expenses) and 43% for the total DTI. Conventional loans are available up to 45%,

No matter which loan you choose, make sure that you have sufficient capital reserves and emergency savings funds. Also, I recommend that you don’t max out on your DTI. Make sure that you take care of your other debt payments.

I recommend that you shop around. Check out mortgage rates at Bills.com: http://www.bills.com/mortgage-rates/ and then get a quote for different types of loans. Ask the lender for a pre-approval, based on documents which prove your income and credit.  But there is no reason why you would not qualify for a conventional if you qualify for an FHA just because of the PMI not being an issue.  Another thing to think about is that the PMI on a FHA loans is for the life of the loan now so if you can put down 20% why wouldn’t you?

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