Real estate agent's simple understanding of Private Mortgage Insurance.
Options for a homebuyer to obtain Private Mortgage Insurance?.
1. Borrower paid Monthly- The borrower will pay a monthly premium up until the loan balance reaches 78% of the value of the home. The lower the down payment, the higher the monthly insurance premium.
2. Borrower Paid Single Premium- The borrower will pay an upfront Mortgage Insurance premium at closing. There will be NO monthly mortgage insurance payment.
3. Lender Paid Single Premium-
4. Mortgage Insurance Financed- The upfront mortgage insurance premium can be financed into the borrowers loan amount. There will be NO monthly insurance payment. The subject property, though, must appraise for a value that includes the insurance premium being added to loan amount.
Briefly, the main differences for Mortgage Insurance for a Conventional Loan compared to an FHA loan are as followed:
1. Mortgage insurance on a conventional loan is terminated once the balance of the mortgage reaches 78% of the value of the home. FHA requires mortgage insurance to be paid monthly for the TERM of the loan regardless of future loan to value.
2. Mortgage insurance on a conventional loan has several options as stated above. On FHA loans, Mortgage insurance is paid upfront AND is paid monthly.
If your buyer has the ability to put at least 5% down payment, going the Conventional route could be more cost saving than putting 3.5% down payment on an FHA loan.
As mentioned this is my understanding as a real estate agent of private mortgage insurance best to always consult with your local mortgage expert.