Special offer

10% Down Full Price Offer Coming! Hold it Right There!

By
Real Estate Agent with RE/MAX ELITE, Brevard County FL

Getting an offer from a buyer pre-approved with conventional mortgage with 10% down. Should your seller jump on that offer? Not so fast, I say! It's all about the PMI

The PMI Guidelines of a conventional loan have a different set of guidelines from the conventional mortgage. I have a client who's selling their home and buying another, but need their home to close before buying their next home. the buyers of their home had a pre-approval from a lender using conventional financing, with 15% down, so far so good,  until the week of the closing. The lender could not secure the Private Mortgage Insurance which is required by the lender when putting less than 20% down. Both parties were all packed up ready to close, talk about a let down! The closing was delayed 30 days as the buyer could not qualify for the PMI even though they thought were approved, they ultimately had a generous family member gift them the additional 5% down payment needed to make up the 20% down payment. Just imagine if they were not able to come up with that gift!
The reasons the PMI were not part of the pre-approval?  The PMI guidelines are separate and the insurance cannot be obtained until the loan process is near or at completion,  the borrowers debt to income ratios may have been lower but once all income was verified perhaps the ratio limits were exceeded and the lender did not catch it until the end.

So if someone did not have 20% down, why not just try to get The FHA mortgage?
There is a huge cost difference in the monthly mortgage insurance premium. The difference in the monthly payment could increase the debt to income ratio and may put the ratio too high to qualify. Example of a $200,000 loan amount, the monthly PMI for a conventional would avg $112 compared to $192 for FHA mortgage insurance, that's almost 90% more in the PMI payment!

It's possible to have the automated underwriting system issue an approval, but the PMI might be a different story.
With strict debt to income ratios it's best to know where the buyer stands. Perhaps just more awareness can make the difference!

This whole PMI thing is a game changer and really needs to be investigated earlier in the process. As a Realtor, Having knowledge and communication with the Lender plays a big role.
Asking the lender for information regarding the current PMI guidelines and find out as much as possible early in the process could just save both parties from a huge disappointment.

Today's Typical guideline to qualify for PMI- These are NOT ALL the requirements just an overview- speak to your lender directly for current guideline information.


PMI
Conventional
5% down 720 fico
10% down 680 fico
Debt to income ratio 45%


FHA
Which offers 3.5% down payment
Upfront mortgage insurance premium 1% nod the base loan amount- this can be financed in to the loan amount
monthly premium .115 factor

Knowledge of these guidelines is important, but also the most important key is knowing if the Lender has issued the approval according to the PMI guidelines.

www.SteveSellsFlorida.com

 

Comments (1)

Deborah Byron Leffler BzyBee Real Estate Lady!
Keller Williams Realty Boise - Nampa, ID

Oh so frustrating...we have had many folks lately who should be well qualified but we end up with hiccups at the end!    I am glad that your transaction is going to work out in the end!!

Aug 23, 2011 06:40 AM