The new world of Private Mortgage Insurance.

 This is an update to a post a few months ago, There have been a few significant changes.

Over the past few years we have seen so many changes in the mortgage world, the most obvious one is the return of PMI. We spent years doing loans with piggy back seconds cheating the system into thinking that there was 20% down.  The days of the 80-10-10 are gone, and the days of the High LTV second are gone as well.

PMI at one time was a simple thing. Most of us that have been in the business for more than 10 years can quote you what it was for a 5% or 10% down deal "way back when".Times have certainly changed as PMI has become a moving target and the cost of PMI fluctuates not only with down payment, but with credit score and property type as well. PMI changes have caused Guideline changes for Mortgage programs and have been causing a lot of confusion in the industry.

There are 6 major players in the Private Mortgage Insurance world and each has their own guidelines. The list below is a snapshot of what can and cannot be done with PMI, and in some cases what is only a "maybe" when you see only 2 of the 4 companies doing certain loan types now, I would not doubt that they will change their minds fairly quickly and not want to be adversely selected. Here are the bullet points:

• PMI and Credit Scores:

4 of the 6 Companies have a minimum credit score of 680

1 has a 660 minimum score

1 has a 720 Minimum AND will not insure above a 90LTV

3 allow below 660, BUT "subject to expanded criteria rates or to Nonstandard rates" That means OUCH!

• PMI and Ratios:

5 of the 6 companies have maximum back end ratios (or DTI Ratios) of 41% No matter what AU/DU/LP says.

1  maxes out at 45 with Automated approval(DTI: Debt to income, so the mortgage payment + Debt can be equal to no more than 41 or 45% of the gross Monthly Income)

• PMI and Condos

3 of the 6 companies require at least 10% down on condos

2 allow for 5% down, but in each case SIGNIFICANT restrictions apply. Each PMI company has their own list for declining markets which may increase the minimum down payment.

1 says "NO" to condos all together

• Investment properties:

Not eligible AT ALL for any of the PMI companies

• PMI and the new loan limits above $417,000:

5 require a Minimum 10% down

1 will not insure above $417,000

2 require a minimum credit score of 740

1 requires a minimum credit score of 720

2 require a minimum credit score of 700

• PMI and Second/Vacation homes

None of the companies will insure a vacation/second home

• PMI and Multi Family Homes:

1 of the 6 companies Allow 2 Family owner occupied at 5% down with a 680 Minimum credit score

5  do not allow 2 family homes at all

3&4 Family homes are not eligible at all for PMI with any company

• PMI and Refinancing

None of the companies will insure a Cash Out Refi, so Cash out for a conventional loan is now limited to 80%.

The above are just the bullet points we all run across every day. There are additional restrictions for each level, and if your market happens to be considered a declining market... Look Out! The minimum credit scores go up, and they are requiring more down as well.  PMI guidelines are changing frequently, more than likely companies will continue to tighten their guidelines as we move forward until things get more "normal" and we stop hearing the "F" word.

 FHA SAVES THE DAY Deal!

Here is the bright side to this story, FHA.  Do not shy away from an FHA loan.  Here are a few quick comparisons:

• FHA's MIP (Mortgage insurance premium) does not change based on credit score
• FHA has a discount on MIP at 5% down
• FHA allows as little as 3.5% down (USDA loans allow for less, but not common in all areas)
• FHA MIP is often MUCH cheaper than PMI
• FHA has more flexible ratios, and more flexible credit score requirements
• FHA allows 85% Cash Out Refi's
• FHA Loans work and are insurable and affordable with credit scores down to 620

I could continue this FHA list but that would be an entirely different blog!

Bottom Line here: Less than 20% down, there will be PMI, in some cases there may even be PMI with 20% down. There are not any sustainable options to avoid PMI these days. A few lenders do still allow Lender funded (IE: Higher Rate) but you are still paying for PMI; you just do not see it.  Also, do not be surprised if you have a buyer with 20% down and we recommend they go FHA. A 660 Credit score, (or worse a 659), will often be much better off with an FHA loan VS a conventional loan.  Make sure you are working with a Trusted lending PARTNER to be sure they have your clients best interests in mind, and are aware of the ever changing mortgage world.

The confusing world of PMI simplified

Have a great week

Rob

Robert Rauf

Mortgage Banker

www.RobertRaufHomeLoans.com   or my blog: http://activerain.com/blogs/rrauf

(732)223-1630 x102

Since 1987 I have been helping my clients fulfill their dream of home ownership!

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