Home Buying in Morristown>Question Details

Rick, Home Buyer in Morristown, TN

How does private mortgage insurance work? When is it not required?

Asked by Rick, Morristown, TN Sat Nov 5, 2011

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Pmi insurance is used when a property
Is given a 80% loan to purchase price or higher. It Is to protect the lender in case of default. The way that morgage holders look at it if you are paying 20% or more down your less likely to walk away from your loan because you will loose the equity you have in the property. If your paying pmi when ever the loan ratio goes under the amount agreed upon between you and the lender it will be dropped from your payments upon written request. Otherwise it will be dropped when the bank decides too especially in some cases so if you think your around paying down 20% or more on your home call your bank to see if it can be dropped. It will save you a lot of money each month 
0 votes Thank Flag Link Tue Apr 10, 2012
Just wanted to add that PMI is no longer a tax deductible item starting this year, If you are using a conventional loan (not an FHA) then you might want to investigate the lender paid PMI option. This will require that you pay a slightly higher interest rate but you will avoid the monthly PMI premium. You total payments will be lower and more of your payment will be a tax deduction.
0 votes Thank Flag Link Sat Jan 28, 2012
Hi Rick...

PMI is required by a lender when a loan amount exceeds a loan to value of 80%. The factor increases from a low between 80-84.99% to 85-89.99%, and again from 90-95%. PMI is typically waived when you pay your loan balance down to 79% of the original LTV or should you prove to the lender (typically with an official appraisal) your home has increased in value.
PMI is a totally different animal from MMI or UFMIP related to FHA loans. Sherry explained FHA insurance well previously.
Jim
0 votes Thank Flag Link Sun Nov 6, 2011
Hello Rick,

Sherry did give a good explanation for PMI/MIP for a FHA loan. In regards to a Conventional loan, if you put less than a 20% down, mortgage insurance is required.

It is a lot easier to gid rid on PMI with a conventional loan versus an FHA loan. And in some cases, a lot cheaper in the long run.

I know of a few programs that you wouldn't have to pay a monthly premium for Mortgage Insurance regardless of the down payment. If you like to discuss these options further please contact me.
0 votes Thank Flag Link Sat Nov 5, 2011
Going with a conventional loan avoids it. FHA explains it best:

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.
0 votes Thank Flag Link Sat Nov 5, 2011
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