Most 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…
If 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. 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 VA Guarantee Fees and PMI (or MIP) is that there’s no MONTHLY fee (plus they call it a fee, not insurance)!
The Veteran Home Loan Program Guarantee Fees actually went down in the Fall of 2011.
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