Mortgage Insurance 101

By
Mortgage and Lending with AJM Mortgage Inc. NMLS#194532

Mortgage insurance protects the lender in case a borrower defaults and is required on all FHA loans and Conventional loans when putting less than 20 % down.

For FHA loans mortgage insurance consists of both MI(Annual Mortgage insurance paid monthly) and UFMIP (upfront mortgage insurance premium).  UFMIP is financed into the loan and is not an out of pocket expense.  Below are the FHA mortgage insurance charts as of April 1, 2013 showing the premium amounts and the duration in which the monthly amount will be paid. 

FHA 30 Year MI

FHA 15 Year

duration of MI

Conventional Mortgage insurance is know as PMI (Private Mortgage insurance).   There are multiple companies that offer this insurance and typically the lender that you chose dictates who provides the insurance.  PMI is cheaper than the MI offered by FHA but has pricing adjustments based on credit score and down payment that FHA does not.   The guidelines can vary between providers so if a lender cannot approve your loan based on requirements from the MI provider, depending on the issue, there is a good chance that changing MI providers will resolve the issue in my experience.  

PMI also gives you flexibility in how you pay it.  There is regular conventional mortgage insurance which is an annual premium paid monthly.  You can also obtain LPMI (Lender Paid Mortgage Insurance) which in exchange for a slightly higher rate the lender pays the insurance.  This gives you a lower overall payment.  Single Premium Upfront mortgage insurance can be financed into the loan as long as the total loan amount does not exceed 95% of the purchase price or appraised value which ever is less.  You can also get a split premium which is a combination of lender paid and conventional mortgage insurance.  Your mortgage consultant has the tools to analyze your situation to advise you on the proper type of insurance based on the down payment, the length of time you plan on having the loan, and whether you are going to prepay the loan or not. 

Conventional mortgage insurance remains on the loan until 22% equity is achieved based on the original sales price or 2 years whichever is longer.   If the loan servicer allows, an appraisal may be obtained to remove this earlier.    

Comments (2)

Michael J. Perry
KW Elite - Lancaster, PA
Lancaster, PA Relo Specialist

Great explanation, I've Bookmarked it to share with some of my students ! 

Aug 27, 2014 08:07 AM
Benjamin Yocca
AJM Mortgage Inc. - Pittsburgh, PA

Michael,  I am glad that you found this useful.  Is there any other topics that you would like to see?

Aug 27, 2014 11:23 PM