Understanding Mortgage Insurance – What does it all mean?

By
Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

Keys to home ownership


Understanding Mortgage Insurance and the different types

The keys to home ownership can be tricky and confusing, unless handled by a true professional loan officer. You’ll sometimes hear loan officers and or realtors talk about one mortgage program over the other, telling you how great it is or that the monthly mortgage insurance is less than the other program. But wait, one main ingredient is still missing in this whole equation. What are the credit scores, aka fico scores. Why is this important?

When comparing a conventional loan to any other type of mortgage loan, many of the MI companies (mortgage insurance) will have certain restrictions when it comes to credit scores, the percentage of the down payment, and area restrictions.

 

Let’s quickly look at the four major types of mortgages.

Conventional Loans – If you have less than 20 percent down, you are required to have some sort of mortgage insurance. The standard mortgage insurance is called monthly mortgage insurance. There are such programs called LPMI (Lender Paid Mortgage Insurance) and BPMI (Borrower Paid Mortgage Insurance). ps.. Mortgage Insurance doesn't always fall off when you hit 78% LTV (loan-to-value). Specific guidelines must be met still.

FHA loans – You have upfront mortgage insurance and monthly mortgage insurance. No matter if you have 20 percent or more down, you are still required to have monthly mortgage insurance. Depending on your credit scores, even with 20 percent down, a FHA loan still might be your better option. FHA raised it’s mortgage insurance as of April 18th,2011. New FHA mortgage insurance   – Reminder – If you do put 20 percent down, the mortgage insurance falls off in 5 years.

USDA Loans – As it stands, there is no monthly mortgage insurance. But this will change come October 1st, 2011. New USDA monthly mortgage insurance.

VA Loans – There is no monthly mortgage insurance.

Summary of mortgage programs : Three of the major types of mortgages mentioned above, FHA loans, USDA loans, and VA loans, all have some sort of upfront mortgage insurance. Each one has a different name for it.

 

Here is a comment that I just heard the other day.

“The FHA Premium Rate Increase Makes conventional MI a Better Option for Many Borrowers.”

To me, this is a blanket statement, and a huge reason why so many people get put into the wrong types of mortgages. Sometimes the basic reason was because it was just easier for the loan officer and not what was better for the borrower. Mortgage Insurance guidelines change, but as of right now, you typically need a 680 credit score of better when putting 5 percent down. Many MI companies want a 700 credit score. When you hear about these special MI programs such as BPMI, you need a 700 or 720 credit score.

 

Summary :

When it comes to conventional mortgage insurance, not only do you need specific credit scores that have to be higher, but the loan gets underwritten again by the MI company. When it comes to FHA loans, it’s a one time thing. Again, you need a professional loan officer that understands these differences and who will dissect the different types. It might seem easy to some, but if not done correctly, it can be a long and confusing process.

The bottom line, just be careful of what you hear out on the street. Blanket statements could be expensive.

.

~ Credit Score Series ~

 

 

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Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc

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Re-Blogged 8 times:

Re-Blogged By Re-Blogged At
  1. Hannah Williams 05/19/2011 04:38 AM
  2. Gina Chirico 05/19/2011 05:07 AM
  3. Mark A. Crain 05/19/2011 05:19 AM
  4. Hector Reyes 05/19/2011 05:20 AM
  5. Emmary Simpson 05/19/2011 06:59 AM
  6. Gayle Henderson 05/20/2011 03:59 AM
  7. Barbara-Jo Roberts Berberi, MA, PSA, TRC - Greater Clearwater Florida Residential Real Estate Professional 05/29/2011 03:23 AM
  8. Barbara Martino-Sliva, Top Producer 05/29/2011 04:11 AM
  9. Daniel H. Fisher 06/27/2011 02:13 AM
Topic:
Lending / Financial
Location:
New Jersey Camden County Cherry Hill
Groups:
Mortgages
All About Mortgages/Mortgage Networking
The Lounge at Active Rain
The FHA Mortgage Group
Tags:
credit scores
mortgage insurance
mi
monthly mortgage insurance
mortgage insurance credit scores

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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

PRAFUL... . sorry if that part was a little confusing.... if you put 20% or more down, it will fall off in 5 years and it doesn't matter what the value of your home is at that time. But if you tried to refinance later on, no matter the LTV, you will have mortgage insurance again.  thanks for asking...

 

May 19, 2011 05:54 AM #12
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Paul McFadden
Paratex - Seattle, WA
Pest Control, Seattle, WA.

Jeff: Thanks for the clarification. I'm curious what you're seeing FHA vs. conventional. Obviously, there's blood in the water with FHA effectively doubling their monthly MI premium. Are you seeing conventional being more competitive now comparing apples to apples?

 

May 19, 2011 05:59 AM #13
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Larry Bettag
Cherry Creek Mortgage Illinois Residential Mortgage License LMB #0005759 Cherry Creek Mortgage NMLS #: 3001 - Saint Charles, IL
Vice-President of National Production

Jeff, this was already featured prior to me.  Great job.  The bottom line is that there's so many variables to each....it's not just 4 categories anymore....THAT A BUYER NEEDS A PROFESSIONAL....not some bank employee collecting docs!

May 19, 2011 06:40 AM #14
Rainer
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Vince McEveety
Gilleran Griffin Realty - Sherman Oaks, CA

great post

thanks for the info and thanks for sharing

great to have

cheers

v

May 19, 2011 07:04 AM #15
Rainer
284,418
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA

Jeff,  Now that you have done such a good job covering the Monthly Mortgage Insurance fees, are  you going to write another blog on the Upfront MI, Funding Fee costs and how they apply?

May 19, 2011 07:47 AM #16
Rainmaker
111,672
Jerry Morse
The Morse Company - Janesville, WI
BBA,GRI

I think an important issue your bought out is a good loan officer will find the best fit for a buyer. 

May 19, 2011 08:29 AM #17
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

PAUL... . to answer your question, only if you have high credit scores and put 10% or more down. I will be doing a series of FHA vs conventional posts with different down payment amounts and credit scores... but this can be tough, because as I mentioned, conventional mortgage insurance might not be allowed depending on where the property is located. Well, allowed, but that it would have higher restrictions... it just gets so detailed... thanks

LARRY... . thanks buddy for the compliment. Yes, there is just so much to think about and look at when it comes to mortgage insurance. As you and I stated, so many variables.

VINCE... . my pleasure and thanks for stopping by & for the compliment.

STEVEN... .  well, thanks for the compliment, I think... lol  Seriously, I find this stuff boring and hate writing about it... I guess I could have made this a 3 part series, because mortgage insurance alone, there is more to talk about.. such as when it falls off, the different types... and as you pointed out, the upfront stuff, or the VA or USDA mortgage insurance that gets dumped on top.  I guess I will have to do a series now.. thanks

JERRY.... . I think that was one of the main problems from 2002 to 2006, that many loan officers gave out loans that were easy for them and not what was best for the borrower. I know this for a fact from listening to some in the past and from talking to some... thanks

 

May 19, 2011 09:42 AM #18
Rainer
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Maya Swamy
Funds Available - Long Beach, CA
Ph.D. Long Beach, CA - fundsavailable.com

Very well written post - I look forward to going back and reading the rest of the series.

May 19, 2011 12:16 PM #19
Rainer
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Brian Morgenweck
Power Realty Group, LLC Bergen County, NJ - Hackensack, NJ
Broker/Owner, GRI, CRS, ABR, SRS

Hey Jeff!

Thanks for the 411... How about a future post on some of the requirements on conventional MI not necessarily being dismissed after LTV ratios are reached? Mostly credit scores at that point or more to it?

Thanks again!

May 19, 2011 01:14 PM #20
Rainmaker
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Ginny Gorman
RI Real Estate Services ~ 401-529-7849~ RI Waterfront Real Estate - North Kingstown, RI
Homes for Sale in North Kingstown RI and beyond

Jeff, i can not get enough of this information on the MI as it changes so much now & i need to keep absorbing it....ALso, thank you Leslie for that comment on the MI with short sales...i just ran into it for the first time & my seller was going ballistic 'cause she said she had no MI...well guess what the Investor did...

May 19, 2011 02:11 PM #21
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Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

Dang, Belonger!  Another gold star!  I'll never get a chance to include you in my little summary.  Good information, though!

May 19, 2011 02:40 PM #22
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Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

Jeff - This is really important information for people buying homes and underscores why they need a knowledgeable mortgage professional.

May 19, 2011 03:30 PM #23
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans


MAYA aka Long Beach... .  I hope the other links help some or to help educate your borrowers.  And thanks for the polite compliment.

BRIAN.... . to be honest, the details to what you mentioned have changed some and I would need to dig into it... and it's truly a boring topic for me.. lol   Seriously though, I have thought about it.  But I am a little confused on what you would want. Details on how MI falls off?  Or not that and more details on the special requirements on the different levels of MI with the credit scores?  Because if the second, the problem with that is many of the MI companies are different... and, it would also come down to the location of the property. Even if I gave the specifics, if it was in an area that had extra restrictions, that would reduce your LTV.... in any case, thanks for the polite comment and for asking... would like to hear more of your feedback on what you would like. thanks

GINNY... . I agree 110%.... it can be hard to keep on top of, even as a loan professional. And yes, thanks to Leslie on her info...

PAT... . yea, 2 for 2 since being back... I need to write a bad one tomorrow.  ;o)  Seriously, it's nice when my posts get recognized. But no way I get 3 in a row, so you can use the one I do tomorrow.  ;o) thanks

CHRISTINE.... . I think it's extremely important info, especially when so many make conventional MI appear cheaper, which in many cases, it is... but in some cases it requires more money down or much higher credit scores. And that just doesn't fit the average home buyer. Thanks

 

May 19, 2011 04:09 PM #24
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Melissa Zavala
Broadpoint Properties - Escondido, CA
Broker, Escondido Real Estate, San Diego County

I wrote a similar post a few weeks ago. I think this is such an imporant topic and many do not know anything about mortgage insurance.

May 19, 2011 05:13 PM #25
Rainer
36,451
Gayle Henderson
RE/MAX Excalibur - Scottsdale, AZ
Your Terravita Resident Specialist

Thank you so much for a comprehensive discussion of a very misunderstood concept.  Appreciate your time and effort to get the right word out on the "street".

May 20, 2011 03:56 AM #26
Rainer
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Robert Courtney
Lihue, HI
Century 21 All Islands, RA, CDPE, MCRE, CIAS

Jeff - Good information to remember.  I like the series.

May 21, 2011 05:34 AM #27
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

Melissa, Gayle, and Robert.... thanks for stopping by...


Paul, comment #13... here is a quick comparison that I just did regarding FHA loans vs Conventional loans.  This is based on using standard MI for conventional loans. As you can see, even with 5% down, as long as your credit score is under 700, FHA in my opinion is still better and cheaper. thanks

 

May 25, 2011 02:29 AM #28
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Barbara-Jo Roberts Berberi, MA, PSA, TRC - Greater Clearwater Florida Residential Real Estate Professional
Charles Rutenberg Realty - Clearwater, FL
Palm Harbor, Dunedin, Clearwater, Safety Harbor

Jeff - This is another one of those great posts that you write! I have chosen to reblog this one as well! Thanks!

May 29, 2011 03:24 AM #29
Rainmaker
841,357
David Popoff
DMK Real Estate - Darien, CT
Realtor®,SRS, Green ~ Fairfield County, Ct

Jeff, nice summary and once again you show how every home purchase has different criteria to meet, Thanks for the post very informative.

Jun 27, 2011 02:22 AM #30
Anonymous
Kerstin Tineo

This article is outstanding, informative and most interesting. I have thoroughly enjoyed taking in the points of interest and I agree with you on most. Thank you for caring enough to make your content interesting.

May 11, 2015 10:20 AM #31
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