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The new world of PMI, Updated April 29, 2009 (FHA saves the day)

By
Mortgage and Lending with CMG Home Loans NMLS 248937

 

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!

Real Estate Mortgage Network

REMN

 

 

 

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Comments (20)

Robert Rauf
CMG Home Loans - Toms River, NJ

as I mentioned, this is an update to an older post. These days in guidelines a week can mean ancient history!  I received quite a few calls from this last time, so this is an important issue!

Thanks for reading!

Apr 29, 2009 09:52 AM
Cindy Edwards
RE/MAX Checkmate - Johnson City, TN
CRS, GRI, PMN - Northeast Tennessee 423-677-6677

This is really great information.  Thank you so much.

Apr 29, 2009 10:01 AM
Richard Byron Smith, NMLS #184479
Mortgage Loan Officer, Fairway Independent Mortgage Corporation NMLS #2289 - Chattanooga, TN
Mortgage Loan Officer

Robert,

MI has become a major obstacle. Add HVCC, and you are right - FHA.

Thanks,

Richard

Apr 29, 2009 10:24 AM
Susan Mangigian
RE/MAX Preferred - West Chester, PA
Chester & Delaware County Homes, Delaware and Ches

Great job here Rob!  Thanks for the great information!

Apr 29, 2009 10:24 AM
Kara Casamassina
International Property Management Group, LLC - Aiken, SC
Boomers and beyond

Hi Rob -  Thanks for including the 'bright side' !   You were right - some very significant changes.

Later :)

Apr 29, 2009 11:00 AM
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Robert - Yup, this is why I go FHA whenever I can.  I've said it before and I'll say it again, this whole matter with PMI companies disregarding Fannie/Freddie guidelines is a classic case of the tail wagging the dog.

Apr 29, 2009 12:22 PM
Chanda Barrick
Keller Williams Indy Metro Northeast - Indianapolis, IN
in referral

Robert, thanks for the info.  Who knew PMI could be so confusing!

~Chanda (no 'r') :)

Apr 29, 2009 01:43 PM
Laura Giannotta
Keller Williams Realty - Atlantic Shore - Little Egg Harbor, NJ
Your Realtor Down the Shore!

Thanks Rob, with all the changes it seems like we need a score card to keep up!  That's why I turn to experts (like you)!

Apr 30, 2009 12:35 AM
Robert Rauf
CMG Home Loans - Toms River, NJ

Kara, Back to the fountain??? (PS: Porkroll!)

Cindy, Thanks for reading!  Rember FHA is NOT evil!

Richard, thank you for the comment

Susan, Thanks for the compliment!

HI DONNE! We still need to educate the outside world about how good FHA really is!  some people still are scared of it.

Hi No 'R' Chanda! You are welcome.  It is not just PMI that is so confusing, Guidlines in general often conflict, all the more reason that you need to work with a trusted Mortgage Partner!

You are welcome Laura!

Apr 30, 2009 02:49 AM
Tom Boos
Sine & Monaghan Realtors, Real Living - Grosse Pointe Farms, MI
Providing the very best of service to Sellers and

Hey Robert:  Lots of good information here.  It's all about FHA these days.  Thanks goodness buyers continue to have this option available to them.

Apr 30, 2009 04:36 AM
Robert Rauf
CMG Home Loans - Toms River, NJ

Tom, I couldnt agree more!  I have always loved FHA loans, it has been a great option for buyers forever!  we just need to be sure the rest of the world knows it! People still shy away when they hear FHA because of some old horror story ... FHA is just as easy as a Conventional these days!

Apr 30, 2009 05:35 AM
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Robert... this is excellent information.  You should be placing this in the FHA group and so I can feature it. I just did a FHA vs conventional comparison with 5% down and showing 3 different MI comparisons, and your blog also proves my point.  this is an excellent break down.  The FHA Mortgage Group

jeff belonger

May 01, 2009 04:42 PM
Robert Rauf
CMG Home Loans - Toms River, NJ

Jeff, I just put this on the FHA Group, I had to "re-do" the blog since I did not want to pull if from another group.

May 02, 2009 03:56 AM
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Robert... no problem... thanks for doing that, because it is extremely worthy in my opinion.  thanks  PS... just got off the phone with a client that I did his purchase for 14 months ago...  who did a mtg for around $235,000 and is being told on a FHA streamline with no appraisal at 4.5%, that he will need no money at the closing table.. and he said that I said 5% and that this other company is lower. I got a little angry because I said they are lying to him.. lol  I then asked if they ever gave him a GFE and he said no. I said.. major red flag right there, especially since it's been 2 days and rates have moved for the worse.  It sounds like he is going to take that chance. rut row.  sorry, but since I know you and know that you love FHA as much as I do, and that you know your stuff, this scenario is very scary and SAD. But I am getting calls weekly from people that went through these false promises. Besides, he said he'll let me know Monday. lol  This is the stuff that we need to educate people on.     Thanks again for putting this in the group.

jeff belonger

 

May 02, 2009 05:08 AM
Robert Rauf
CMG Home Loans - Toms River, NJ

I always tell people: "if it sounds too good to be true, it probably is!"  There is so much talk of the mid 4's and it hasn't been real with out paying points.  People just dont get it.

May 02, 2009 05:21 AM
Mirela Monte
Buyers' Choice Realty - North Myrtle Beach, SC
Myrtle Beach Real Estate

Robert:  Thanks a lot for the update!  This is now featured on the Optimist Group, because it is very important for all agents to know this.  The great majority of my deals right now are all cash.  Financing takes a lot longer and I am seeing Agents writing deals for a 60 day close, a full 30 days above what we are used to in this market. 

May 07, 2009 03:38 AM
Robert Rauf
CMG Home Loans - Toms River, NJ

Thank you Mirela!  PMI is so restrictive in certain areas that we are left with FHA.  I know your market is a lot of investment and second homes, you are left with 20% down or more right now for them.

May 07, 2009 04:38 AM
Marcia Snowden
Help-U-Sell Summit Properties - Colorado Springs, CO

How true to use a "trusted adviser" in the lending business, someone who is able to keep with all of the changes.  You all are incredible!  It is so nice to work with a lender that a Realtor can trust with their client and know the client is being treated in the best possible manner.  Thanks for all of the information.  Marcia

May 07, 2009 08:41 AM
Darin Osenberg
Funky Quail Vintage - Nashville, TN

Nice job Robert!

Can I steal this??

Also, am I HIGH, or did you leave out LMPi?? or, is that another blog! :)

Darin

May 10, 2009 02:51 PM
Robert Rauf
CMG Home Loans - Toms River, NJ

Darin, you can borrow it!  LPMI??? More alphabet soup that is going the way of the dinosaur! 

Not many lenders that have that left, and it can be so all-over-the-map, I doubt it is even possible to write a blog on!

May 11, 2009 07:10 AM