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The C-NOTE: Eliminate Private Mortgage Insurance and Save A Lot

Real Estate Broker/Owner with Charles Stallions Real Estate Services 610125

The C-Note is a short version of the monthly newsletter put out by Charles Stallions, (CRS) Certified Residential Specialist, (SREE) Senior Real Estate Expert, (CPI) Certified Property Investor, Author, and a 28-year broker of real estate, designed to put HUNDREDS, if not THOUSANDS, of dollars back in your pocket. There are as many ways to do real estate as there are probably agents, but here at Charles Stallions Real Estate Services, we "do it right," starting with the customer's end in mind. 

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Eliminate Your Private Mortgage Insurance

As the Pensacola real estate expert Charles Stallions explains, with a loan-to-value ratio of 80%, lenders typically won't require mortgage insurance. A borrower could put 10% down, securing an 80% first mortgage and a 10% second mortgage, thereby avoiding PMI. However, there's a slight caveat to this strategy: the interest rate on the first mortgage tends to be about .25% higher with subordinate financing (the second mortgage).

Mortgage insurance is often misunderstood. While lenders mandate it to mitigate their risk for loans exceeding 80% of a home's value, it's not solely a means of extracting more money from financially strapped borrowers. Instead, it is a valuable financial instrument enabling lenders to extend loans for up to 97% of a property's value due to its risk-mitigating function.

The cost of mortgage insurance is commonly misrepresented. Although it varies based on the borrower's credit score and loan-to-value ratio, a borrower with a 760 or higher obtaining a 90% loan may incur a cost of .30%, translating to $68 per month for a $300,000 purchase. Comparatively, for a 95% loan, the PMI cost would be $97, and for a 97% loan, it would amount to $167.

PMI's utility facilitates earlier home purchases, sparing buyers the need to accumulate larger down payments. Given the national average home values exceeding $300,000 (and trending upward), the ability to buy sooner translates to significant cost savings for prospective homeowners.

It's crucial to understand that PMI is temporary. By law, lenders must automatically terminate the requirement when the loan balance reaches 78% of the home's value at the time of funding. For a 90% loan, this typically occurs in slightly less than seven years. Borrowers can expedite the removal process by providing documentation demonstrating that the loan balance is 80% of the home's current market value, typically by commissioning an appraisal.

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Comments (1)

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

I’m surprised that more 80-10-10 deals aren’t happening . We did learn though in 2010 Short Sales , that Lenders would still buy their own MI  ..

Feb 26, 2024 04:54 PM