The Different Kinds of Mortgage Insurance

February 1, 2012 by Leave a Comment

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 has gone up to 2.25% with monthly payments of .55% of the total loan amount.  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 and PMI (or MIP) is that there’s no MONTHLY fee (plus they call it a fee, not insurance)!

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

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

 

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Qualifying For A FHA Streamline Refinance

December 13, 2011 by Leave a Comment

FHA Streamline refinanceFHA changed it’s guidelines so that VERY little is required to qualify, however, in North Carolina, we have our own State mandated standards, so again – many of the NC Banks can not offer this program the way FHA intended for it to work – WE DO!

FHA says that to qualify:

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FHA Underwriting Guidelines for NC

November 21, 2011 by Leave a Comment

fha mortgage loanWe talk to people everyday who have questions about qualifying for a FHA Mortgage Loan in NC.  FHA Underwriting Guidelines, are actually pretty straightforward. 

Unlike qualifying for a VA Mortgage loan (where you must be a qualifying Veteran) or a USDA Home Loan (that requires that you meet income limits for your county and the property must fit within the USDA RD Loan Footprint) – FHA has far fewer restrictions!  They do have Maximum Loan Amounts, which vary per county – but other than that, just about anyone who wants to purchase an Owner Occupied Home can do so!

  • Maximum Loan Amounts:  Maximum FHA Loan Limits Vary per County, and are subject to change each October.  Congress has said that they will be  lowering the High Cost Area FHA loans that are currently available in areas like Washington, DC and San Francisco in October of 2012. It looks like the maximum FHA Loan Limit for Homes in Raleigh will change at that time too. The 2010 FHA Maximum Loan limit for Wake County is $295,000 – the 2012 limit could go down to $271,050. [Read more...]

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Getting the Lowest Payment

September 19, 2011 by Leave a Comment

mip

When clients contact us  they are usually looking for the lowest monthly payment – or the easiest way to get into the property with the least amount of money tied up in the transaction.

Most prospects only ask one question… “What’s your rate???”  In truth, there are MANY other questions to ask!

One of the variables consumers should ask more about it Mortgage Insurance.  There are multiple forms of Conventional Mortgage Insurance – running from Lender Paid, to Financed to Monthly.  If you are purchasing in NC Conventional lending currrently requires PMI if you have less than 20% equity in the property.

Government loans also carry mortgage insurance.  For FHA loans this is called MIP, VA and USDA call these Guaranty Fees.  One of the major differences in GOvernment Mortgage Insurance programs and Conventional MI programs is equity investment.  With a government loan you mortgage insurance is required- no matter how much money you put into the initial transaction.

Please note that FHA allows MIP to “age off” if at least 5 years of payments are made and there’s a 78% equity position.  This is a significant program enhancement agents often forget.

If you are looking for the lowest mortgage payment in Wake County, contact Steve and Eleanor Thorne 919-649-5058. We offer the best mortgage rates available.

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FHA PMI Changes 4/18/2011 – Again

February 16, 2011 by 1 Comment

FHA Announced that they will be changing their Mortgage Insurance Premiums (sometimes called MIP or PMI) again effective April 18, 2011. This change, like so many others is not going to make the program any cheaper!

FHA does not underwrite mortgages - they insure them against default, just like Private Mortgage Insurance Companies.  Because of this, they set their own guidelines for underwriting the file, and they set their own rates.

There are currently two types of Mortgage Insurance or PMI associated with every FHA loan we make.

Up Front Mortgage Insurance Premium (sometimes referred to as UFMIP):  The current rate on this premium is currently 1 percent of the loan amount.  At THIS TIME, if you sell the property or refinance it – you will NOT get a refund of the fee as you did in year’s past.

Annual or MONTHLY Mortgage Insurance (I’ve seen it referred to both ways because pay for it MONTHLY – but it’s calculated on an annual basis):  The NEW rate for this FHA Mortgage Insurance Premium varies depending upon your downpayment – and the length of your loan

Annual Premiums for Loans Longer than 15 Years

(So 20 and 30 year mortgage loans)
If you borrow 95.000% of the value of the home or Less                               110 BPS
If you borrow MORE than 95 percent of the value of the home                 115 BPS

Annual Premiums for Loans 15 Years or Less

If you borrow 95.000% of the value of the home or Less                                 25 BPS

If you borrow MORE than 95 percent of the value of the home                  50 BPS

How do I know what the BPS means to my monthly payment??

In the simplest of terms (for these purposes) here’s how you calculate it:

Sales Price is $300,000

3.5% Downpayment makes your Loan Amount $289,500

Multiply $289,500 by 1.15% which equals $3,329.25 per month.  Divide that by 12 months – and your Mortgage Insurance payment is roughly $277 a month.

If you apply for a mortgage PRIOR to April 17, 2011 (meaning the CURRENT rate), your monthly Mortgage Insurance payment is $229 on that mortgage. Here’s the letter from FHA about all of this.

My personal feeling is that these premiums are too high… but that is what the government is aiming for.  They want more Banks and PRIVATE Mortgage Insurance Companies to be in the mortgage arena.  The good news is that house prices are SOOOO low – that even with the higher mortgage insurance premiums – there’s good value available!

If you have questions about purchasing a home and qualifying for a FHA mortgage loan in NC – please call Steve and Eleanor Thorne!  919-649-5058

 

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FHA PMI Changes 10/4/2010

August 13, 2010 by 2 Comments

For about the 5th time in the last 36 months FHA is changing the way it charges Mortgage Insurance.  While this is a pretty major shift in the Way Mortgage Insurance is calculated for FHA, it’s only about a net $20 per $100K borrowed difference.

HISTORY of FHA’s PMI (Mortgage Insurance)

First off, it’s not called PMI. FHA doesn’t MAKE mortgage loans, they insure them.  The mortgage insurance that they charge is referred to as MIP (cleaver I know, Mortgage Insurance Premium).  I refer to it in my blog posts as FHA’s PMI... well because from a Consumer’s standpoint it works just like PMI, and most people are familiar with that term.

MIP has been charged TWICE to borrowers for YEARS. FHA collects an UpFront Mortgage Insurance Premium that’s gone from 1.5 to 1.75 t 2.25 to 1% of the loan amount.  In years past they’ve refunded part of this UpFront Premium… so if you took out a loan in say 2002, and then you paid that loan off through a refinance in 2004… you received a substantial chunk of that premium back.

Then the Economy went south, and with the changes they made in 2008, they did completely away with the refund…

The other way FHA collects the premium, is in the MONTHLY MIP premium.  In year’s past, that MIP collected on a monthly basis for loans with less than a 5% downpayment was.55%.  For loans where the borrower made more than a 5% downpayment, the MIP was .50%.

How These Changes Compare to the new October 2010 MIP Rates

Okay, because I can pretty easily do the math in my head, let’s compare the “old” rates for FHA Mortgage Insurance to the “new” rates based upon a $100,000 sales price with a “fictitious” mortgage interest rate of 4.25%.

DownPayment Upfront MIP Monthly MIP Loan Amount
With Upfront MIP		 Total Payment
with MIP		 Difference
NEW Method of Calculating MIP
3.5% 1% $75.75 $97,465.00 $555.22 + $24.60
5% 1% $67.96 $95,950.00 $539.97 + $21.64
OLD Method of Calculating MIP
3.5% 2.25% $45.22 $98,671.00 530.62
5% 2.25% $40.47 $97,137.00 518.33

These numbers, at $100,000 Sales Price don’t look that dramatic…  Let’s take the same format, and change the Sales Price so that we can take advantage of the maximum Loan Amount for Wake County, NC $295,000.

So with a Sales Price of $305,000 the numbers look like this…

DownPayment Upfront MIP Monthly MIP Loan Amount
With Upfront MIP		 Total Payment
with MIP		 Difference
NEW Method of Calculating MIP
3.5% 1% $222.95 $297,268.00 $1685.33 + $66.93
5% 1% $210.56 $297,268.00 $1672.94 + $67.08
OLD Method of Calculating MIP
3.5% 2.25% $137.93 $300,947.00 $1618.40
5% 2.25% $125.39 $300,947.00 $1605.86

Well… what do you know?  It’s STILL not that dramatic a difference.  I know my peers are on Facebook, and sending around video saying that this is a “Tax” on home owners.  It’s not.  It’s a way for FHA to get the cash flow they need, while mortgage loans are defaulting.

HERE’s what I think is interesting! You can buy a house with 2723 square feet, in Raleigh, 4 bedrooms, with a 2 car garage built in 2009 for $219,000. With these new FHA calculations, and with today’s interest rates, your down payment is $7,665 (this can be a GIFT) and your TOTAL monthly payment, including Homeowner dues, and taxes and insurance and EVERYTHING is still less than $1050 a month!

If you have pretty good credit (scores above 620) and not more than $350 a month in debt – a family making only $38,000 a year qualifies for this house! Now THAT my friends, is something to get excited about!

If you are considering a FHA mortgage loan in NC, and you want more information about qualifying for a FHA mortgage loan in Cary or Raleigh NC  - please call Steve and Eleanor Thorne, Mortgage Banker in Cary 919-649-5057.  We know FHA Mortgage Programs, and we have the best Mortgage Rates available!

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DRATS! FHA is Getting More Expensive!

June 15, 2010 by 1 Comment

As we reported in April, Washington is trying to offset the costs of FHA foreclosures… and so it appears that FHA mortgage Loans are going to get more expensive. Many folks don’t realize that FHA doesn’t really MAKE loans… they just INSURE them.

Last week, the House of Representatives gave the FHA power to raise the monthly mortgage insurance premiums it charges to its borrowers. This bill passed almost unanimously, and although it doesn’t force FHA to raise the monthly fees, it still means that these loans will likely be more expensive later this year.

Currently, monthly mortgage insurance premiums are 0.55% of the unpaid loan balance, divided by 12. The recently approved Federal Housing Administration Reform Act provides for an increase in monthly premium of up to 1.55 percent..

Again, the bill does not force FHA to charge the full 1.55 percent, and FHA officials believe that an increase to 0.90 percent would be sufficient to currently cover the cost of these loans.

Here’s the impact on a 200,000 loan:

  • Current Premium (0.55%) : $91.67 monthly mortgage insurance premium
  • Expected Increase (0.90%) : $150.00 monthly mortgage insurance premium
  • Maximum Increase (1.55%) : $258.33 monthly mortgage insurance premium

No doubt, a fairly large increase, like this,  in monthly mortgage insurance premiums will reduce home affordability for buyers in North Carolina and strain some household budgets as people decide if it makes sense to refinance!

FHA charges mortgage insurance two different ways. It charges a monthly fee, and it charges an upfront fee. (for more click here).  FHA’s upfront mortgage insurance changed earlier this year to 2.25%.  This means that if you are borrowing $100,000 your loan amount is $102,250 with the upfront mortgage insurance.  Because higher monthly insurance premiums are expected to cover the default costs,  FHA indicated that it plans to reduce its upfront mortgage insurance premium paid at closing from 2.25 percent down to 1.000 percent.

This makes sense, because homes in many parts of the country are going to lose some of their value in the next 12 to 18 months.  Why would you want to go INTO a deal with that much additional costs? On the same $200,000 mortgage, a move like that would reduce the upfront cost by $2,500.

Bottom line, if you are considering a FHA mortgage – you might want to move quickly, because it’s going to get more expensive!  Call Steve and Eleanor Thorne, Mortgage Banker in Cary , 919-649-5058.  Certified Mortgage Planners in North Carolina!

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Congress Making Changes to FHA Mortgages

April 30, 2010 by 2 Comments

The House Financial Services Committee acted yesterday to move forward H.R.5072, “FHA Reform Act of 2010″ which, in part, makes a move to raise the ceiling on annual FHA mortgage insurance premiums.

FHA does not make mortgages loans, they INSURE them. As an INSURANCE Agency, they are required to hold reserves against any claims  - and because the national default rate is still very high, they’ve had tons of claims.  They are required to hold a 2% capital reserve rate, and it had fallen to .53.

FHA’s Mortgage Insurance Premium is kinda’ like PMI.

Earlier this year Congress approved changes to increase the UpFront Mortgage Insurance Premium (MIP) FHA charges to 2.25%. They also changed the amount of Seller Contributions to 3% (from 6%).  The latest changes will increase the amount of MONTHLY Mortgage Insurance Premium (MIP) higher, in a gradual process.  FHA says it will increase the monthly MIP to an annual rate of @1.5%.

This will affect the “affordability factor” of purchasing for buyers. Currently, a FHA mortgage of $290,000 has a monthly MIP payment of $132.91.  When the MIP is increased to the full 1.5%, that same $290,000 loan will have a monthly MIP charge of $362.50.

If the full Congress approves the annual increase, FHA will then shift some of the upfront premium to an annual premium to reduce the burden on borrowers at closing.

Either way – the cost of borrowing from FHA is going to be more expensive over time – and borrowers will be looking for property that is $30,000 to $40,000 LESS than the properties they are purchasing now. That’s important to remember for those of us working with First Time Home Buyers!

The GOOD NEWS is that it looks like the provision to force FHA downpayments from 3.5% to 5% was dropped. We’ll continue to monitor this.

If you are considering a mortgage loan in North Carolina, and you want more details on FHA  Mortgage Loan Guidelines – please call Steve and Eleanor Thorne, FHA Mortgage Loan Specialists!  We have over 20 years of experience providing homebuyers with the BEST mortgage rates available!

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FHA PMI update

October 20, 2008 by 2 Comments

This is an update to an earlier post reagarding FHA’s version of Mortgage Insurance (which is sometimes referred to as PMI).

As we mentioned, FHA mortgages have a one-time mortgage insurance premium, known as upfront mortgage insurance. The cost of this insurance has bounced around alot this year – and is NOW 2.25% of the loan.

This upfront fee is non-refundable.  There’s also a monthly fee that’s based upon several things, but will generally run .55% of the loan amount.  If you live in the property for more than 5 years, and you have a 20% equity gap – the monthly amount can be dropped just like with it’s conventional counter part – PMI.

The program is similar to the USDA and VA programs.  Both of those loan programs have a type of mortgage insurance (called a Guarantee Fee), that’s non refundable.  The biggest difference is that FHA also has a monthly fee collected.

The common belief that the monthly mortgage insurance on a FHA loan is very expensive is wrong.  Unlike a Conventional Loan, no matter how much you put down, it’s either .55 percent of your base loan amount. When you compare this program to a Conventional Loan Program that requires PMI, you would need to put down at least 10% down in order to get to .52 percent.

These PMI amounts are accurate for Condos, 203k loans – or regular 203b FHA loans.

For more info – call Steve Thorne, Corporate Investors Mortgage Group, 919-649-5058 – FHA Mortgage Loan Specialist!

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Mortgage Insurance vs Default Insurance

April 14, 2008 by 12 Comments

mortgage rates caryMortgage Insurance, Default Insurance, Homeowners Insurance, Mortgage Life Insurance… it can be confusing!!

Homeowners policies and Mortgage Life Insurance (issued by companies like State Farm) have been around for a long time – and protect you as a consumer against catastophies like hurricanes or disability.

As a general fule of thumb mortgage insurance (for conventional loans) are required for loans with less than 25% equity in the property.  For government loans - you can count on having Mortgage Insurance no matter how much equity you have in the home.

Mortgage Insurance and Default Insurance are virtually the same thing. They are called by different acronyms, dependant upon the mortgage loan program you are using to finance your home.  It was put into place in the early 1970s to protect lenders against giganitc losses created by large numbers of foreclosure (like the economic conditions we find ourselves in today!) Mark Flanders, of Spokane wrote a great article on potential ways to AVOID paying PMI – although these options are quickly going away.

Conventional loans refer to mortgage insurance as PMI, and can be financed, paid by the Lender, or paid on a monthly basis.  Here’s some more information…

  1. One-Time Financed mortgage insurance. We recommend this mortgage insurance product on a regular basis.   A discount is offered in the mortgage insurance rate as the PMI company receives full payment “upfront.”  The premium is added to the loan balance, however it doesn’t adversely affect your equity position, as there are provisions for refunding pro-rated monies back if you sell or refinance.  There are also tax advtanges as your loan amount will be higher.
  2. Lender Paid Mortgage Insurance. If you elect this program, the lender will pay for your mortgage insurance by giving you a higher interest rate. There are times when this might be a good choice (depending on your goals and how long that you will be in the house) and there are times when Investors offer “specials” making this one of the best options. As a borrower who might need PMI – always consider what the TOTAL payment will be.  This payment is often the lowest of the option available – and again you receive the tax advantage of paying slightly more interest.
  3. Monthly mortgage insurance. The “oldest” form of PMI is the monthly paid insurance.  As with all of these programs, the insurance rate is determined by program, FICO and overall investment in the property.  This insurance is the only one (mentioned here) that you can have removed once you gain the required equity in the property. It is also generally the most expensive on a monthly basis.

This is important to understand, especially if you are considering a REFINANCE!

If you are interested in learning more about Mortgage Insurance, or getting pre-qualified for a loan in Raleigh, contact Steve and Eleanor Thorne, Corporate Investors Mortgage Group in Cary, NC, 919-649-5058  We offer the BEST Mortgage Rates!

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