What is PMI and I should I Pay It?

If you’re getting ready to buy a home, then you’ve likely heard of private mortgage insurance (PMI). You might also have a basic idea of what it is, but do you understand why lenders charge PMI or how it’s derived? Here is a review of some details about PMI, as well as some options for paying less monthly PMI or in certain cases, avoiding it entirely.

What is PMI?
PMI is a type of insurance paid  to mitigate a lender’s potential loss if you default on the mortgage loan. In other words, if you stop paying your mortgage, the lender will be would be able to recover their losses from the PMI company.

Why do I have to pay PMI?
Private mortgage insurance is required when you put less than 20 percent down when purchasing a home, or have less than 77 percent equity when refinancing your home.  Basically, the lender wants a safeguard in the event you stop paying your mortgage (a.k.a. defaulting on the loan) so they can re-sell the property to recoup their investment.

PMI Payment Choices
There are many choices available when paying PMI and each will vary based on your individual financial situation:

Borrower Paid Mortgage Insurance (Monthly Premium): This type of mortgage insurance is a monthly payment included as part of a monthly mortgage payment.   This is the most common type of mortgage insurance.

Borrower Paid Mortgage Insurance (Single Premium):  This option allows you to eliminate the monthly mortgage insurance payment by paying the full cost of the mortgage insurance at closing or including it in the total cost of the loan amount.

Lender Paid Mortgage Insurance (Single Premium): This type allows a one-time upfront fee that is paid by the lender and eliminates the monthly PMI obligation.  The lender typically covers the one-time upfront fee  by by slightly increasing the  interest rate over the duration of the loan.

Split 50/100 Mortgage Insurance: This option reduces your monthly PMI obligation by paying a percentage of the loan amount upfront – you can pay up to 1.25 percent.  The greater the upfront portion paid, the lower the monthly payment.

www.KesslerHomeLoans.com

What is PMI and I should I Pay It?

Conforming vs. Jumbo Mortgage Loans - FLORIDA HOME LOANS

Determining whether or not your loan is jumbo or conforming may seem confusing; which is why, we have crated this blog post as an educational resource.

It simply boils down to: the type of loan (FHA or Conventional), your county's limit and the type of property you are purchasing or currently own. For example, a non-FHA loan limit for a single family home, or condo, in Collier County, FL is $448,500 and in Monroe County, FL is $529,000 yet, all other counties in Florida the limit is $417,000. The reason for this difference is some, more affluent, counties have higher limits as a consequence of average home prices and land value being more costly.

Conforming or Jumbo. Which one are you?
You’ll need to first determine the type of financing (FHA or Fannie Mae/Freddie Mac. FHA and Fannie Mae/Freddie Mac have set different loan limits so you’ll need to use the proper resources when checking local loan limits.

FHA loan limits. Simply enter your state, county and hit send at the bottom of the screen. You’ll be given the loan limits for your county along with the loan limits for each property type within your county.

Fannie Mae/Freddie Mac loan limits. While this is Fannie Mae’s site, both Fannie Mae and Freddie Mac rarely move independently of one another.  The charts will offer the loan limits for each property type; however, does not provide detailed information regarding high-cost counties.

Conforming and Jumbo Loan Underwriting Differences
Conforming lending rules are more flexible than jumbo – from the required credit score to the down payment. With regard to jumbo lending, guidelines are more stringent, and with good reason, lenders are taking more risk. Additionally, you’ll find jumbo loans will require higher credit scores and larger down payments.

Conforming
Conforming Programs and Rates. Conforming loans offer more competitive rates and offers both ARMs and Fixed rate programs.

Conforming Credit. You will need to have a minimum credit score of 620.
Conforming Income. All types of income can be used when qualifying for a conforming loan. Speak with your mortgage professional should you have questions about your earned income.Conforming Assets. The lender will want to see two to three months savings (reserves). One month’s reserve is the equivalent to one full month’s mortgage payment (principle, interest, taxes and insurance).

Conforming Debt. The lenders use debt-to-income ratios to qualify you. Conforming guidelines (rules) are more flexible and you can be approved above the suggested debt-to-income ratio.  Just keep in mind, your gross income is used when determining whether or not you qualify so be sure you are comfortable with your monthly payment.
Conforming Property Appraisal. Only one appraisal is required.

Jumbo
Jumbo Programs and Rates. The rates for jumbo loans are less competitive than conforming loans. Additionally, adjustable rate mortgages are most commonly used in the jumbo arena. While fixed rates are offered, the rates are about half-percent higher than that of a conforming loan.

Jumbo Credit. The minimum credit score for a jumbo loan is 700.

Jumbo Income. Just as with conforming loans, All types of income can be used when qualifying for a conforming loan. Speak with your mortgage professional should you have questions about your earned income.
Jumbo Assets. In addition to the down payment and closing costs, a jumbo lender will want to see a minimum of twelve months reserves (remember, one month reserve = one mortgage payment).

Jumbo Debt. As with conforming loans, jumbo lenders use debt-to-income ratios for qualification purposes. Jumbo guidelines (rules) are not as flexible. For example, a conforming lender may approve your loan at forty-five percent; however, some jumbo lenders will limit you to forty percent.

Jumbo Property Appraisal. Depending on your loan amount, you may be required to pay for two appraisals.

When researching your financing options be sure and talk with your mortgage professional regarding all of your available options.

www.KesslerHomeLoans.com

Conforming vs. Jumbo Mortgage Loans - FLORIDA HOME LOANS

Cheaper To Buy Versus Rent in Many Metros

Trulia has released new data stating that owning a home may be a cheaper option in many metropolitan areas than renting. According to the report, homeowners who stay in their homes for seven years will save approximately 38% when compared to those who rent. Jed Kolko, Trulia’s chief economist said, “even in these metros buying remains cheaper, thanks to mortgage rates that are still very low by historical standards.” A few of the metros mentioned are Chicago, Los Angeles, Dallas, Philadelphia, Washington, and Houston. More here

More about me here:  www.MyMortgageGuyTOM.com 

Cheaper To Buy Versus Rent in Many Metros