When can you cancel mortgage insurance?

Minneapolis, MN:  Mortgage insurance? Everyone asks when can you cancel mortgage insurance?

The answer can vary greatly bepending on loan program chosen, the down payment size, and market conditions. Understanding the basic’s goes a long way in helping make a loan and down payment decision.

For standard conventional mortgage loans with monthly mortgage insurance:

  If you do notthing special but make your payments:

  • About 110 monthy with 5% down
  • About 89 months with 10% down
  • About 56 months with 15% down

You can ask the lender to remove monthly mortgage insurance earlier if  with the combination of paying down the loan, and home appreciation, you believe the amount you owe on the home is now less than 80% of it’s value.

For FHA Loans

For FHA loans with LESS than 10% down

  • Life of loan (never goes away unless you refinance)

For an FHA loan with 10% down or more

  • Exactly 132 months
  • You can NOT remove earlier even if you fall below 80% loan-to-value

For VA Loans

  • No mortgage insurance

For USDA Loans

  • Life of loan. Never goes away
Cancel Mortgage insurance and save

Other Mortgage Insurance Options

We all want to save some money, so understand that with standard conventional loans, you can also ‘buy out’ of monthly mortgage insurance that may save money in the loan run.  There are two ways to do this:

Lender paid mortgage insurance – This is where your lender increases the loans insterest rate to pay for the mortgage insurance in lieu of you paying it monthly. There are a ton of variables in this option to determine if it makes sense, and is not automatically good or bad.

Borrower paid mortgage insurance – This is where you pay an extra lump sum at closing to buy out of monthly mortgage insurance. Generally the cost is about equal to 40 payments of monthly mortgage insurance, and can really add up. As with lender paid mortgage insurance, there are many varibles to determine if this options makes sense.

You can potentially do the old two loan option to avoid mortgage insurance. For example you get a standard loan at 80%, and a second mortgage at 10% (total = 90% financing). I’m not a gigantic fan of this option in most cases because when you do this, generally the first mortgage insterest rate is .125% higher because your risk level is still 90%. Next, most home equity loans are varible rates, with minimum payments of interest only.  I’ve seen many people take this option, then make small interest only payments.  10-years from now, they still owe the full amount, leaving themselves in worse position than if they had taken standard mortgage insurance.

How PMI has Changed

Finally, standard monthly mortgage insurance is very different today than just a few years ago.  For most people, it is a lot cheaper.

All the mortgage insurance companies have switched over to risk based pricing.  A 5% down loan needs to cover your risk 15% (to 80% loan-to-value), and is therefore more expensive that a 15% down loan, which only needs to cover your risk 5% (to 80% loan to value).

Next, credit scores matter too. Someone with excellent credit will pay significantly less in mortgage insurance than someone with weaker credit score.

One other factor is how many borrowers. Generally speaking, two well qualified people buying a home are less risk than just one person, so mortgage insurance even fators than to determine the cost. The simply reason being if there are two borrowers, and one has a job loss, they have less risk of default than just one borrower who has a job loss.

In the end, a good Loan Officer will also have, as part of your loan review, a conversation about mortgage insurance options with you. If they didn’t, call someone else!

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I lend in MN, WI, and SD and would love to be your lender. 

To apply directly with me, and find out what type of loan and mortgage insurance is right for you, just go to iJoeMetzler.com or call me at (651) 552-3681. NMLS274132. Equal Housing Lender

Call Joe Metzler, iMortgageJoe.com


Why do I need mortgage insurance??

Why do I need mortgage insurance?

When buying a home, and getting a home loan, being approved or not all comes down to risk. If the mortgage company thinks you are a good risk, you get the loan. If you are too risky, you get denied. Pretty simple concept.

A good example of this concept is down payment size.  If you put at least 20% down, you are considered a good risk. Put less than 20% down, you are high risk. Needless to say, not everyone can put 20% or more down payment.

To minimize the lenders risk on small down payment loans, but yet allow for these same small and more affordable down payments, a tool called mortgage insurance, commonly referred to as PMI, or private mortgage insurance is available.

The insurance policy you are required to obtain and pay for as part of your monthly mortgage payment essentially provides protection to the lender in case you default on the loan, and covers the lender for the amount between 20% down and what you actually put down.

The cost of the mortgage insurance depends on multiple factors, but primarily down payment size, credit scores, and loan type.

The smaller your down payment, the higher the mortgage insurance costs. The lower your credit score, the higher the costs.  For example, A client with 10% down and an 800 credit score on a 30-yr fixed loan might pay about $30 a month per $100,000 loan amount for mortgage insurance. The same 10% down, but a client with just a 640 credit score might pay as much as $105 per month per $100,000 loan.

Contact your loan officer for exact monthly costs for your individual situation and down payment size, as this article covers basic and most common situations, but does not encompass every possible situation.

Typicaly standard PMI will automatically fall off your loan once you reach 78% of the original loan amount with no interaction from the homeowner. It is simply automatic.

You can request to have mortgage insurance removed from your loan once you believe you are at 80% of the original loan. The 80% mark can be based on a combination of paying down the loan, and today’s appraised value.  For example, you put 5% down when you bought the house, you’ve paid down through payments another 5%, and the home has appreciated 14% since you bought it.  That would put you ate 76% loan-to-value. So contact your lender on their proceedure to have mortgage insurance dropped.

Must Deal With Mortgage Insurance

If you are putting down less than 20%, you MUST deal with mortgage insurance somehow. Other than monthly mortgage insurance, lenders can also offer more creative options. The most popular is known as ‘lender paid mortgage insurance’, where the lender increases your interest rate, and uses the extra money to buy mortgage insurance. You still have it, but it doesn’t show as a monthly cost.

The next is known as ‘single premium’ insurance. Under this option, you pay a one time lump sum amount up-front at closing equal to 3-years of monthly mortgage insurance.

The last option, is getting two loans. An 80% first mortgage, and a second mortgage to cover the difference from what you have for down payment. This is a viable option primarily for high credit, low risk clients, and for jumbo loans over $424,100.

While these options may sound enticing, for most people, balancing up-front costs, long-term versus short-term costs, and overall benefits based on individual situations can become a mind numbing challenge.  Suffice to say the vast majority of people go with standard monthly mortgage insurance for a reason.

FHA Loan Mortgage Insurance

FHA loans also have mortgage insurance, but this insurance is significantly different from conventional loan mortgage insurance.

Most people using FHA loans put the minimum down payment of 3.50%, and take a 30-yr fixed loan. Most FHA mortgage insurance is the same for everyone regardless of down payment size or credit score.  For small down payments, this is roughly $85 per month per $100,000 loan amount.Next, FHA mortgage insurance for small down payments is called ‘Life of Loan’ insurance, which means regardless of future loan-to-value, appreciation, or what you’ve paid down, FHA mortgage insurance never goes away. The only way to remove it is to refinace the loan.

Another item with FHA loans, is that regardless of down payment size, ALL FHA loans will have insurance. So contact your loan officer for exact monthly costs for your individual FHA insurance, especially if you are putting more than 10% down or picking a 15-year loan.

PMI is Not Homeowners Insurance

Mortgage insurance often times gets confused with home owners insurance.  PMI protects the lender from default, while home owners insurance protects the owner for items like fire, storm damage, theft, etc.

VA Loans Have NO Mortgage Insurance

If you are active or former U.S. military, you have a great benefit in a VA Home Loan. Most people know VA loans generally do NOT require a down payment, they also have NO monthly mortgage insurance.  This can be a huge monthly savings over other loans.

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Author Joe Metzler is a Senior Mortgage Loan Officer for Minnesota based Mortgages Unlimited. He was named the 2014 Minnesota Loan Officer of the Year, and Top 300 Loan Officers in the Nation for 2010, 2015, 2016.  He provides Home Mortgage Loans in MN, WI, and SD. He can be reached at (651) 552-3681. NMLS 274132.







USDA to lower mortgage insurance costs

USDA to cut loan mortgage insurance costs

The USDA Rural Housing home loans will soon get  cheaper for homeowners with lower mortgage insurance costs.

USDA Rural Development LoansUSDA announced last month that it was lowering its upfront mortgage insurance premium fee to 1 percent of the total mortgaged amount, down from the current from 2.75 percent. This amount is added to the borrowers loan.  So someone today borrower needing a $100,000 loan would actually have a $102,750 loan. Under the new guidelines, the same borrower would have a $101,000 loan.

The monthly mortgage insurance on a USDA loan will also be reduced from the current .50% to just .35%.  On that same sample $100,000 loan, this means a monthly mortgage insurance drop from $42.84 a month to $29.99 a month.

The change becomes effective Oct. 1, 2016, and will bring the fees and insurance premiums down to pre-recession levels.

The agency said that the cuts were possible because of the bulk of the mortgage and housing crisis is over, and foreclosure rates have fallen to back to more traditional numbers.

Learn more about USDA rural housing home loans in MN, WI, and SD.







FHA Mortgage Insurance Lowered!

FHA will cut its mortgage insurance premiums to 0.85 percent, a 0.5 percentage point reduction (down from 1.35%)
President Obama was expected to make the announcement on Thursday in a scheduled speech on the housing market, but the White House made it official following initial media reports.
FHA loans had seen significantly increased costs for in PMI (mortgage insurance) after the housing bust. The increased cost seriously hampered housing, keeping many out of the housing market. The reduction in costs should help creditworthy first time homebuyers re-enter the housing market.
Full details to follow as they come out, but this is great news that I wanted to get out ASAP.

 







FHA Mortgage Insurance soon to be for life of loan

FHA Mortgage Insurance soon may be for life of loan

Minneapolis, MN:  The Federal Housing Administration (FHA) has announced that sometime in 2013, all new FHA insured mortgage loans will now require the monthly mortgage insurance be on the loan for the entire LIFE OF LOAN.

The proposed rule is NOT official — Yet.

Currently, FHA mortgage insurance premiums drop from FHA insured loans once the loan balance reaches 78% of the original balance and the home owner has had the loan at least 5-years.

FHA has not giving an official starting date yet, but it will be on all NEW loans going forward, and WILL NOT effect existing FHA insured home loans. Any existing FHA insured loan will still be able to drop mortgage insurance (PMI).

Most NEW FHA insured loans are just 3.5% down payment – therefore the mortgage insurance is currently 1.25% of the loan amount monthly. FHA has also announced that in 2013, the cost of the insurance will increase to 1.35% monthly.

As an example, on a $100,000 FHA insured loan, the homeowner will pay $112.50 in mortgage insurance every month for the entire 30-year loan.

For those capable, meeting both the higher credit score and underwriting guidelines, moving to a conventional loan with 5% down is going to result in very significant savings over an FHA mortgage loan going forward.

FHA has indicated they are making this move to increase their capital reserves after suffering major losses due to foreclosures and the mortgage market meltdown. The vast majority of the losses are attributed to loans written from 2007 – 2009 as lenders moved marginal home buyers into FHA loans after sub-prime loans disappeared from the market in 2007.

 FHA home mortgage loans will still remain a great option for many buyers, but clearly FHA has indicated they do not want to be the loan for everyone.

 

 







FHA Announces Loan Fee Increases

Minneapolis, MN: Thinking of getting an FHA home loan?  The Federal Housing Administration, commonly known as FHA just announced increases to mortgage insurance fees it charges homes owners by 10 basis points, or 0.10%.  This is on top of the massive fee increase from last year, which effectively doubled the cost of FHA mortgage insurance.

Swamped with a record $70 billion of claims from lenders on loans originated from 2007- 2009, the Federal Housing Administration Friday said it had no choice but to hike monthly mortgage insurance.

With the fee increase, the typical FHA borrower will now pay 1.35% of their loan amount per year in mortgage insurance. For example, a home with a $100,000 mortgage will now pay $112.50 a month in PMI. FHA said the fee increase will average $13.00 a month. Two years ago, the same $100,000 home would have only paid $45.83  a month.

The increase is designed to fix a reported a 16.3 billion deficiency in the FHA insurance fund as a result of defaulted loans insured during the housing crisis. While the mutual mortgage insurance fund shortage was projected at $13.48, this estimate is still well below the 2011 estimate of $14.67 billion.

FHA does actually do home loans, they insure the loans, which means lenders are more likely to do the loans knowing they have insurance on the loans against any losses. The increase insurance will greatly lessen the chances that the FHA will require a Government bailout to cover losses.

The Federal Housing Administration, currently insures about 16% of all home mortgages.







FHA Streamline loans getting cheaper

Minneapolis, MN: For certain FHA loan backed homeowners, refinancing via the FHA Streamline Refinance program is about to get a lot less expensive. Beginning June 11, 2012, FHA implements a new policy for its mortgage insurance rates.

Millions Of FHA Homeowners Now Eligible

FHA mortgage rates have been steadily falling. Unfortunately, the FHA mortgage insurance rates have not. Today’s FHA homeowners pay up to 1.25% in annual mortgage insurance premiums — triple the rates that FHA backed homeowners paid just 4 years ago.

For new FHA homeowners, those buying a home today and using the FHA’s low down payment mortgage program, for example — the FHA’s rising mortgage insurance rates are a nuisance more than anything else. High insurance premiums are the price you pay for getting access to a mortgage with just 3.5% down.

But, for homeowners who already have an FHA backed loan, rising mortgage insurance rates have made it difficult to qualify for the FHA Streamline Refinance, the FHA’s “no appraisal needed” refinance program. This is because while for many people, we can lower their interest rate over 1%, the new higher mortgage insurance costs eat up all the savings. The program rules state that a mortgage applicant’s mortgage payment fall by at least 5% in order to qualify for the FHA Streamline Refinance.

“Mortgage payments” are defined as (1) monthly principal + interest payments, plus (2) monthly mortgage insurance payments. Principal + interest payments have dropped significantly since 2008, but rising mortgage insurance rates have negated these effects. Making that 5% savings marker has become exceedingly difficult.

Potentially millions of FHA-backed homeowners, while eligible, were effectively eliminated from the FHA Streamline Refinance program and from access to today’s low rates.

For long-time FHA-backed homeowners, that’s all changing.

If your current FHA mortgage was endorsed by the FHA prior to June 1, 2009, you are eligible for the FHA’s “grandfathered” mortgage insurance premiums. The new premiums are dramatically lower than the premiums paid by today’s new FHA customers, making the FHA Streamline program once again a great option for home owners.

For eligible homeowners, the new FHA Mortgage Insurance schedule is as follows :

  • All loans : 0.01% upfront mortgage insurance premium (verus 1.75% for new loans)
  • All loans (except 15-year fixed with LTV of 78% or less) : 0.55% annual mortgage insurance premium (verus 1.25% for new loans)
  • 15-year fixed with LTV of 78% or less : No annual mortgage insurance premium







The death of FHA Loans – Starts April 1, 2012

The Federal Housing Administration (FHA) is following through with absurd increase in FHA loan mortgage insurance.

When consumers get an FHA loan, they pay UMIP (Up-front mortgage insurance premium), which is added to their loan amount, and a monthly mortgage insurance fee. Starting April 1, FHA will hike its upfront premium by 75 basis points to 175 bp on all single-family loans, including jumbos. The monthly mortgage insurance will remain the same, at 1.15% for loans over 95% loan-to-value.

On a $200,000 loan, borrowers would actually end up making payments on a $202,000 loan. ($200,000 X 1.00%). After April 1st, 2012, the same person will now have a loan of $203,500. ($200,000 X 1.75%).

According to FHA, the fee increases are designed to strengthen FHA’s capital position and “have minimal impact on the market and borrowers,” according to FHA acting commissioner Carol Galante.

These premiums are expected to dramatically slow down new FHA from $218 billion in the current 2012 fiscal year that ends September 30 to $150 billion in FY 2013 as consumers continue to rely more heavily on standard Fannie Mae and Freddie Mac loans, which now have cheaper mortgage insurance.

In a smart move, FHA noted that FHA streamline refinances are exempt from these new premium hikes.