Should You Pay PMI or the Higher Interest Rate
January 24, 2010 by · Leave a Comment
You Compare mortgage rates but,should I pay PMI or go with the loan with a higher interest rate but no PMI? This is a choice many borrowers face when deciding on a loan. There are many pros and cons for each choice. Borrowers should talk to an experienced Mortgage Consultant or Financial Consultant to help with their decision.
Some lenders pay the mortgage insurance on loans over 80% by raising the rate by a small fraction. This allows the borrower to get one loan and not having an additional expense which is not deductible on one’s taxes.
There are loans out there where PMI is not required and your interest rate will not be effected as well. For example, keeping your LTV (loan to value) below 80% will allow you to not pay PMI with any loan, where it may just be a lender that does not require it.
Why do lenders charge PMI if your loan is above 80% LTV? Studies have shown that most foreclosures happen before the borrower has 20% of the mortgage’s principal paid off. So, loans with an LTV of 80% or higher pose a greater risk to the lender.
You may also choose to do a combo mortgage like an 80/20 to avoid PMI. A combo mortgage carries with it a higher rate
on the second mortgage. Even with a higher rate second the borrower often comes out ahead when compared to a traditional loan with PMI.
Some savvy buyers will negotiate for the seller to pay the PMI as a one time up front charge. Be sure to ask your Loan Officer and Realtor if seller paid PMI is an option for you.
PMI is not tax deductible, but mortgage interest is. You will want to take that factor into consideration when making your choice.
There are also some lenders that offer a lender paid MI program. On pay option loans they will usually increase the start rate of the loan.
There are also some loan programs now available that do one loan up to 100% with no PMI, ask your Loan Officer for more details.
Private Mortgage Insurance (PMI) must be maintain until the loan balance falls below 78% loan-to-value (LTV) ratio. The decision on getting a loan with a higher interest rate or one with PMI depends partly on how long for the loan to reach 78%. Also, home owners tend to opt for mortgages with PMI if they intend to refinance in the near future.
The Truth About PMI, Private Mortgage Insurance
January 23, 2010 by · Leave a Comment
When shopping for a mortgage there is more to do than just compare mortgage rate quotes. Private mortgage insurance or commonly called “PMI” is insurance provided by a private company helping to protect the mortgage lender against mortgage default. Generally, this insurance is required by the lender when the down payment is less than 20% of the properly value. The lender requires the borrower to pay the insurance premiums.
Private mortgage insurance can be avoided. If you are looking to do a 100% financing loan, one option is to do an 80/20 combo loan. This allows you to avoid mortgage insurance and will provide a lower payment than if you were to pay the private mortgage insurance.
Some lenders now have loan programs where the lender pays the PMI and the rate is only slightly higher than it would be if the loan was under 80% of the value of the home.
One of the most frequently misunderstood aspects of mortgaging a home, especially for first-time buyers, is Private Mortgage Insurance (PMI). The most common misconception is that PMI is a mortgage life insurance policy whereby the mortgage would be paid off should the borrower die. It is not.
Instead, PMI is an insurance that most lenders require of all borrowers who put less than 20% down. It’s purpose is to protect the lender against losses should the borrower default.
Virtually all conventional mortgages with less than a 20% downpayment will dictate the inclusion of PMI. FHA mortgages, which are insured by the Federal Governement, require a different type of insurance with different coverages. The cost of PMI will depend on a number of factors, including the insurance carrier and the size of the loan, but monthly payments for the insurance will generally fall into the $25 – $100 range for median priced homes.
Avoiding PMI Private Mortgage Insurance
January 23, 2010 by · 1 Comment
If you have ever purchased or refinanced a home that is over 80% loan to value you have probably heard the term mortgage insurance or are currently paying it. There are several ways to avoid paying or keep the cost of mortgage insurance down.
One way to purchase a home without mortgage insurance is to have an 80/20. That means your first mortgage is at 80 % and your second mortgage is at 20%.
There are many options to avoid mortgage insurance. Financing with 2 loans, LPMI (Lender Paid Mortgage Insurance)which is taking a relatively small rate bump, or by obtaining a subprime loan with a somewhat higher rate will all avoid PMI (Private Mortgage Insurance) If you plan on keeping your home for awhile and you are getting into a great low fixed rate another option is to pay a one time upfront MI (Mortgage Insurance) premium. By paying the one time premium you will be able to get a sizable overall discount of what you would have paid if you chose to pay mortgage insurance monthly. Also, lowering your mortgage term to a 20 year mortgage or a 15 year mortgage will heavily decrease your mortgage insurance payment.
To avoid Private Mortgage Insurance (PMI) on of the things that you may be able to do is to obtain a second mortgage. The lender will only require PMI on a mortgage that is 80% LTV or more and if you keep the first mortgage at 80% and get a second mortgage for the remaining 5-20% this will avoid the PMI.
There are programs with Lender Paid Mortgage Insurance (LPMI) . The rate is slightly higher, but it allows you to secure a mortgage over 80% and have the lender pay the mortgage insurance. Another benefit of this program is that the money you spend on a higher payment from the interest rate is tax deductible, whereas mortgage insurance is not.
If you get a low rate by paying mortgage insurance, it may well be worth paying mortgage insurance for the short term, if you plan on keeping your property for awhile.
Mortgae insurance is avoided in many “sub prime” and “alternative A” lending programs. Although the interest rates may be a little higher, the borrower must keep in mind that interest is tax deductable and the mortgage insurance premiums are not. Often when factoring in the increased tax deduction the sub prime type mortgage makes sense.
Talk to a loan specialist about our piggyback loan programs, which help avoid mortgage insurance entirely in most cases.
Mortgage insurance does not protect you, it protects the lender. If you can avoid having it, it is usually wise to do so.
Keep in mind that if you don’t have enough for a 20% down payment, but have some money to put down, that you can choose to do an 80/10/10 or a 80/15/5 and avoid Mortgage Insurance.
Mortgage insurance costs decrease over time as you gain equity in your home. If the value of your home has increased and the principal balance of your mortgage is at or below 80% of the market value of your home, you may be able to have the mortgage insurance removed. Contact your mortgage company for details
The piggybacked 1st and 2nd mortgage is also known as a combo loan. Some of the different combos are the 80/20 (most common) 70/30 and you may even see any variation of those such as 80/10/10 etc… The second loan on these are what they call self insured loans. Although the second loan will have a higher interest rate you will almost always come out better on a combo loan versus one loan with MI. A couple of reasons why: 1 – your insurance isn’t tax deductible where you interest payments on your second loan are. 2 – you can pay down your second lien off faster leaving you with a payment that is less once this is complete.
If you are currently paying for Private Mortgage Insurance premium on your mortgage, you may be able to drop the PMI coverage. Hire a certified appraiser to evaluate the value of your home. In most cases, a bank would not require PMI if the home value has increased so much where the outstanding loan balance is less than 80% of the increased value. Review your mortgage note or call your lender before ordering the appraisal.
Most people really don’t understand mortgage insurance and think it is something designed to benefit lender. Mortgage insurance, also referred to as private mortgage insurance (PMI), is the reason borrowers were first able to buy home with little or no money down. Loans with less than 20% down are considered high-risk loans and lenders didn’t make them before PMI. With the advent of PMI, the risk to lenders was lessened and they were willing to make loans with little money down.
Stated Income Loan
January 23, 2010 by · Leave a Comment
My loan officer says we are doing a stated income loan. Why dont they want to see my tax returns or pay stubs?
Stated Loans give a little more flexibility when it comes to particuarlly income. With more flexibilty does come more requirements particularly from the credit score necessary to qualify.
An alternative to stated income loans is by using bank statements to qualify as income. Stated income and bank statement loans are there for non traditional income sources and should not be used just for anybody.
Often you simply don’t have a choice. Sometimes a stated loan is the only way to make a paticular loan work. If this is the case with you, make sure you understand exactly what is going on with your loan and why your having to go stated.
One example of a reason that you might need a stated income loan is if you are self employed, and claim significant tax write offs to minimize your taxable income. While this is good for your tax status, most lenders will not be able to use your “real” income and base your debt to income ratios on your taxable income.
Do you have very high credit scores? If so, many lenders will allow you to use a stated income program with little or no increase to the interest rate. High FICO customers are seen as a low risk to lenders so lenders often reduce the burden of gathering documentation in order to earn your business. If you have very high credit scores you should ask your mortgage broker if a stated income program is right for you.
Stated Income mortgage is ideal for home buyers with incomes that are difficult to document. People who receive a good portion of their income in the form of cash tip, such as waiters, taxicab drivers and street vendors may not have paycheck stubs to prove their true earnings. Stated Income loans are created with these homeowners in mind.
Any and all sources of income that is un-documentable would be taken into consideration for a stated income loan. Side jobs where you are paid all cash, is an example of money that would be considered.
Stated income loans are for document relief and not to be used as a way to qualify for a loan in which you cannot afford by falsifying your income. Qualifying for a loan by way of the stated income program can put you in a very tough financial situation if you are not honest with your true income.
Stated income loans should NOT be used to exaggerate your income. If you use a stated income loan to claim you make more money than you do, you are committing mortgage fraud.
Many of those who would not have qualified on a Full Doc Loan will have the option of going with a Stated Income Loan.
