Private Mortgage Insurance has long been a source of eye rolls for many home buyers. However, once you look at PMI for what it is-- a tool to reduce the risk of a mortgage loan-- you may look at it in a different light.
Similar to most insurance we use everyday, mortgage insurance is there to protect the lender if ever a home is foreclosed on. Simple enough, right? What most buyers dislike about PMI is that it's just another thing to pay for. The true spirit behind Private Mortgage Insurance is to enable buyers who do not have 20% for a downpayment to get a conventional mortgage loan and take advantage of the low interest rate and the opportunity to cancel their PMI (As of right now, you cannot cancel MI on a government loan. It automatically falls off with conventional loans!)
However, if you are still trying to save the most money possible, there a few ways to make sure you get the lowest MI rate. At Equity, my team and I always choose the MI Company with the lowest cost to the borrower. I've written up a helpful scenario of the typical conventional loan to help you better understand Private Mortgage Insurance.
You need to know what percent are you putting down on the home, and your middle credit score to figure out the rate. The formula goes something like this…
At a 97% Loan, most lenders require a coverage of 35%.
Depending on the PMI company, the Mortgage Company and your loan is being sold to here are the PMI factors I found today. These are for Borrower Paid, Monthly PMI Rates in NC:
760+ credit score Factor is: .55%
740-759 credit score Factor is: .75%
720-739 credit score Factor is: .95%
700-719 credit score Factor is: 1.15%
We can do a Conventional Mortgage Loan with as little as 3% down with credit scores as low as 620, however the factor for that mortgage loan is 2.25%.
How do you calculate that into your payment? You simply take the loan amount (for easy math I’m using $100,000) multiply it by the Factor, and then divide by 12 for Borrower Paid Monthly PMI Mortgage Insurance. So with a 780 Credit Score, $100,000 x .55 = $550 / 12 equals $45.83 a month.
Meaning, you have a cost for the mortgage re-payment (called P&I), you will have taxes, HOMEOWNERS Insurance (fire insurance) and a PMI cost each month in your monthly payment.
As a comparison, a PMI Mortgage Insurance Rates for a Single Premium Credit Score of 780 for 97% is $2820.00 based upon a search I did today. This could be slightly different depending on the Investor, mortgage company you are working with and the STATE you are buying a home in! I’m quoting the NC PMI Mortgage Insurance Rate.
Going back to the point about Monthly MI paid by the borrower when comparing it to the Lender Paid, a Lender has to charge you a rate high enough to cover these additional $2800+ in fees to cover the Premium.
Somewhere between 87% and 80% LTV it probably does make sense to run the numbers – and see the comparison between Lender paid and monthly. You really need to look hard at the length of time you are likely to stay in the home, and the expected appreciation in your area to decide what is right for you.
The full original post can be found at my website here.
If you have questions about PMI Mortgage Insurance Rates – Current PMI Rates in NC, and you are looking for the BEST Mortgage Rates – please call Steve and Eleanor Thorne, 919-649-5058. We are Professional Mortgage Planners with over 20 years of experience helping First Time Home Buyers in NC!