alternatives to mortgage insurance

I always get asked the question "Do I have to pay mortgage insurance?". It's a good question, why would you want to pay for insurance that only benefits the lender not yourself? If you're not putting down at least 20% to get your loan amount less than 80% of the sales price, conventional underwriting will require you to obtain and keep mortgage insurance with your loan.

However there are two exceptions though that I use quite often. The first is to obtain a first lien loan at 80% of the sales price and then use downpayment and a second loan to cover the other 20%. In a common scenario a buyer will put down 5%, get a second loan for 15% and get a first loan for 80%. As second loans don't require mortgage insurance they do charge a higher interest rate. In most cases though the total payments still work out to being less than one loan with mortgage insurance.

The second exception is to get a loan with Lender Paid Mortgage Insurance, or LPMI. In this case a buyer can put down less than 20% but instead of paying for mortgage insurance themselves the lender obtains and pays for a policy. To cover this extra cost, the lender will charge a slightly higher interest rate, typically 1/4 to 1/2 % higher. Again in most cases this will be a less expensive route than to get a loan with buyer paid mortgage insurance.

There are a number of other details to think about when deciding which route to take. I'd be happy to answer any questions you have. You can email me at billconover@america-lending.com.

100% hard to find

PMI (Private Mortgage Insurance) companies are tightening up their standards after getting hit with some heavy losses due to the national foreclosure problem. While conforming loan underwriting standards still techincally allow for 100% or zero-down loans they do require mortgage insurance. Roughly a month ago the PMI providers decided it was in their best interest to stop writing policies unless a buyer puts at least 5% down. So while 100% loans used to be quite the norm, now they're non-existant.

Although this does hurt some buyers trying to buy a home, overall it's good for the industry as the added oversight will certainly allow fewer bad loans to get approved.

Enjoy your Wednesday,
Bill