Posts Tagged ‘MIP’

PMI vs MIP vs MPI… What is the difference?

May 17, 2017

Lots of acronyms there. What do they all mean?

Many people are familiar with the term “PMI” or Private Mortgage Insurance. This is insurance the borrower pays on behalf of the lender in case of a mortgage default. The insurance protects the lender and becomes a requirement when purchasing a home with less than a 20% down payment (or refinancing with less than 20% equity in the home).

MIP stands for Mortgage Insurance Premium and is completely the same thing as PMI, but that is what mortgage insurance is called on FHA loans.

So what is MPI? That stands for Mortgage Protection Insurance. When buying or refinancing a home, the home owner will get plenty of these offers in the mail in the weeks/months after buying a home. Why? Companies pay people to search through newly recorded deeds at the county. This is legal since the deed is a matter of public record. With the deed information, a company knows your name, your new home address, and who did your loan. The offers for Mortgage Protection Insurance will come regularly in the mail, and these companies make it look like the letter is from your mortgage company. They can be sneaky with these letters.

What does MPI do? If you choose this option, MPI will pay the loan balance off for a borrower in the event of their death. Sounds good, but let’s dig a little deeper. The premiums for this insurance are typically significantly higher thank those for life insurance as they require minimal to no medical examination or health screening. Anyone in any health condition can get this insurance by paying the monthly premiums. The other downside is that as mortgage payments are made, the principal balance of their loan reduces. This means the payout in the event of the borrower’s death reduces… in other words, the premiums stay the same, but the death benefit decreases every month.

MPI is a fantastic option for someone who cannot, for whatever reason, qualify for term life insurance. If you can get term life insurance, it is the better way to go. Typically, people can get more coverage that doesn’t diminish each month for a lower monthly premium.

Just bought your first home and don’t have life insurance? Or maybe you’ve owned your home for a few years, but your family has grown since you last looked at your life insurance coverage. Regardless of your need, my friends at the Sheldon Baker Group can assist you in getting free quotes from the top carriers in the life insurance industry. You can check out the Sheldon Baker Group life insurance page here. You can also call 678-793-2322 or email to sheldon@sheldonbakergroup.com.

Whether you use my friends at the Sheldon Baker Group or someone else, life insurance is important as you own a home and/or have a growing family. Use the MPI offers in the mail as a reminder to evaluate your coverage.

 

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Geographic Income Limits for Home Ready Program

May 1, 2017


One potentially limiting aspect of the Home Ready program is that income limits are specified by census tract.  (Notice I said “potentially.”  We will get back to that point very soon.)  To qualify for the program, the borrower’s income must be less than or equal to the income limit set for the geographic area of the subject property.  Fannie Mae specifies and publishes the geographic income limits as part of the program.  Many areas in Metro Atlanta have an annual income cap of $67,200, but there are many other areas that do not have an income limit.  Now back to the word “potentially.”  If the home you want to buy lies in a no-income-limit area, you could make a million dollars per year or even per month and still qualify for a Home Ready loan for that house.

Two key points to remember here:  First of all, the income limits are based the subject property’s location, so you can have varying income limits in different parts of the same county.  In fact, the eligibility maps go down to the street level, which means that houses on one side of a street could carry a $67,200 income limit and houses on the other side of the same street could have no income limit.  Secondly, the income limits apply only to borrowers on the loan.  If two employed people plan to live in the home, but only one of you is on the loan, then the other occupant’s income does not count toward the income limit.  Of course that means that the sole borrower must qualify for the loan using his or her income only.   

So how can you determine whether you qualify for the Home Ready program’s low down payment / low-interest rate / low mortgage insurance benefits?  You can call me at Dunwoody Mortgage!!  We will first discuss your income and the geographic area where you want to buy.  I can look up the area online and determine whether your income qualifies for Home Ready in that area.  If you meet the geographic income limits, we will complete your loan application, pull your credit report, and run your application through our Automated Underwriting System (“AUS”).  The AUS findings will then determine if you do qualify for Home Ready’s great benefits. 

Buying a house in Georgia and curious whether you can obtain a Home Ready loan?  Give me a call and we will review Home Ready and your other loan options.  Don’t think you will qualify?  We at Dunwoody Mortgage have secured loans for many customers who initially thought they would not qualify.  Don’t assume you cannot win loan approval!  Call me and let’s discuss your situation.  We might just surprise you!! 

 

 

 

FHA loans are back!

July 21, 2015

blog-author-clayjeffreys3

President Obama issued an executive order that reduced the monthly mortgage insurance premium on FHA loans by more than a third. This order started in January. Since then, FHA loan applications rose dramatically. From February through May of this year, the number of FHA loans essentially doubled from the same time period in 2014.

Why all the love for FHA loans? Because the total monthly payment is more competitive now with conventional loans. Prior to the change, home buyers with excellent credit would see monthly mortgage insurance rates 2.5 times higher for FHA loans than conventional loans. Since the change, FHA monthly mortgage insurance is still more expensive, but nowhere near as bad as it was before the executive order.

In fact, I’ve been able to recommend FHA loans again to my clients. What I mean by that is this… prior to Obama’s executive order, the FHA mortgage insurance was so much higher, it made the total monthly payment for FHA uncompetitive to that of conventional loans. Only clients needing a down payment as low as 3.5% or had credit scores under 660 would really consider using FHA loans.

Now the total monthly payments are more balanced, and you see that by the amount of FHA loan applications now being processed. Here is a brief break down of FHA vs. Conventional loans on a decision making basis using credit scores.

  • those with excellent credit will still likely go with a conventional loan even though the interest rate is better on an FHA because mortgage insurance is not permanent (FHA loans can be), and there is no upfront mortgage insurance payment due at closing (FHA requires this).
  • those with average credit could go either way. It really depends on the exact credit score and the rate difference. Remember, the rate for FHA loans are better than conventional, so even though the monthly mortgage insurance could be higher (and permanent, more on this in a minute), the total payment could be basically the same when you take the interest rate difference into consideration.
  • those with below average credit scores tend to go FHA now. Why? The interest rate is much higher on a conventional loan than FHA loans for lower credit scores. Also, the monthly mortgage insurance payment is higher for conventional loans once credit scores go below 680.

The big drawback to FHA loans is that the mortgage insurance can be permanent. That said, under the “old guidelines”, it would take over 11 years of regular, on time payments before mortgage insurance on FHA loans would fall off. Since most people move on average every 7  years, the mortgage insurance would be on the loan the entire time – so “permanent” isn’t as scary as it sounds.

Don’t know if an FHA loan is right for you? If you are buying in the state of Georgia, contact me. We can talk about your situation and decide what loan is right for you and get you into your new home!

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LPMI loans – how to decide?

May 12, 2015

blog-author-clayjeffreys3

I am finishing a series on LPMI loans. If you’ve missed any of them, here is a quick recap for you:

LPMI loans, or Lender Paid Mortgage Insurance, are loan programs that allow a borrower to not make a monthly mortgage insurance payment on the loan. The “catch” is the borrower agrees to a higher interest rate instead.

If deciding which one to do by going with the lowest payment, it is normally going to be the LPMI loan. That said, LPMI loans make less sense when making a larger down payment and/or having an average or below average credit score. So how to make the decision?

Answer this question – How long do you plan to stay in the home?

The shorter the time frame of staying in the home, the more it makes sense to go with the LPMI option. Why? It takes around 4 years for the monthly mortgage insurance to fall off when making a 15% down payment. Closer to 9 or so years when making a 5% down payment.
– If the plan is to stay in the home for only 5 years, then the LPMI loan would probably be the way to go.
– If the plan is to stay in the home for the next 10+ years, then the monthly mortgage insurance loan would probably be the way to go. Why? Once the monthly mortgage insurance payment falls off, the interest rate will be lower compared to the LPMI loan. When using the LPMI loan, you’ll always have the higher rate.

After completing this series, here are the combinations to consider when deciding between using the LPMI loan or a traditional loan with monthly mortgage insurance.
– Consider LPMI when the plan is to stay in the home for a shorter time period, you have excellent credit, and the down payment will be 5%.
– Consider a traditional loan with monthly mortgage insurance when staying in the home for a longer period of time, and/or you have average or below average credit, and/or making a larger down payment.

Clear as muddy water?

If unclear, no worries. That is why I am here. If buying a home in Georgia, contact me today. We can talk about the ins-and-outs of LPMI loans and see what works best for you.

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LPMI Loans – Things to consider

May 7, 2015

blog-author-clayjeffreys3

Continuing a series on LPMI loans, or Lender Paid Mortgage Insurance. Last time I introduced LPMI loans. Today, I want to focus on two things to consider when deciding between using a conventional loan with monthly mortgage insurance OR using a LPMI loan.

#1. Credit – I bet you could have guessed this one! With a higher credit score, the impact to the interest rate is decreased. That said, the lower the credit score, the more the interest rate will be increased.

Remember how LPMI loans work – the borrower won’t pay a monthly PMI payment, but to do so, they are agreeing to a higher interest rate. How much higher? Let’s take a look at two examples of a $300,000 purchase price with 5% down. That gives us a loan amount of $285,000 on a 30 year fixed rate loan.

– 760+ Credit Score: the interest rate on the LPMI loan is 0.375% higher. While the mortgage payment is higher, when you factor is NOT making a monthly mortgage insurance payment, the LPMI loan is lower by about $65 per month.
– Under 720 Credit Score: this time, the net total payment is about $30 less going with the LPMI option. The drawback is the increase to the interest rate, which is 0.750% higher going with the LPMI loan.

The lower payment with the LPMI loan is great, but having the interest rate increased that month is tough to swallow (at least it is to me). The moral of the story is this – an LPMI loan may make more sense for those with excellent credit.

#2. Down Payment – the more money that is put down at the time of the purchase will lower the impact to the interest rate when using an LPMI loan. For example, let’s look at a 5% down payment versus a 15% down payment on our $300,000 purchase price.

– 5% down: it would take about 9 years for monthly PMI to fall off making the minimum monthly payment.
– 15% down: it would take a little over 4 years for monthly PMI to fall off the loan.

The borrower may have the lower monthly payment using an LPMI loan, but why go with the higher rate if the monthly PMI will fall off in only a few years. With an LPMI loan, you are stuck with a higher rate for the life of the loan. The monthly MI payment may result in a higher mortgage payment for a little while, but when the PMI falls off, you’ve got a lower monthly payment. The moral of the story is this – an LPMI loan makes more sense when making a smaller down payment.

How to decide? Tune in next time when we ask the question that helps to decide which option is best for you!

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LPMI Loans – What are they?

May 5, 2015

blog-author-clayjeffreys3

LPMI loans, or Lender Paid Mortgage Insurance, is a loan program that does not require a borrower to make monthly mortgage insurance payments regardless of the size of the down payment. A borrower can make a 3%, 5%, etc. down payment and not make monthly mortgage insurance payments.

Sound too good to go be true? Maybe. There is a catch. In exchange for not making a monthly mortgage insurance payment, the borrower agrees to a higher interest rate on the loan. The lender takes that higher interest rate and purchases a onetime up-front mortgage insurance premium at closing – thus Lender Paid mortgage insurance.

While the lender is technically paying the mortgage insurance, the borrower is really paying it through a higher rate. Does it make sense to use a LPMI loan?

If the goal is a lower payment, the answer is “yes.” When using an LPMI loan, the monthly payment will be lower than having a loan with a lower interest rate but paying monthly mortgage insurance.

Next time, I’ll discuss a couple of items to evaluate when considering a LPMI loan. In the meantime, if you’d like to know more about it, contact me today. I can help get you started on the path to home ownership.

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FHA lowering mortgage insurance

January 13, 2015

blog-author-clayjeffreys3

Finally, FHA mortgage insurance becomes more reasonable (and competitive) when compared to conventional loans. As recently posted on this blog, FHA mortgage insurance has been priced so high that it rarely made sense to consider using an FHA loan.

FHA mortgage insurance still has the one-time upfront premium, and is permanent if making less than a 10% down payment, but at least the monthly mortgage insurance payment is closer. Let’s take a look at how the new numbers compare to one another.

  • FHA – the monthly mortgage insurance rate is dropping from 1.35% to 0.85%. Using our same example of a $250,000 purchase price, the total loan amount would be close to $245,500. If you take 0.85% of that amount, you get $2,087, which is $174 per month.
  • Conventional – assuming the buyer’s credit score is 720+, the same $250,000 purchase price with 5% down would give us a monthly payment of $122 for mortgage insurance. When you take into consideration the fact that FHA loans have a lower interest rate, the difference in the total payment between the two is not much at all.

The buyers who could benefit the most from this are ones looking to make as small of a down payment as possible.

  • The 3% conventional loan is only available to first time home buyers. With only a 3.5% down payment, a buyer would qualify to purchase the home and not get hammered on the monthly mortgage insurance payment since FHA has lowered the monthly amount so much.
  • On the flip side, let’s say it is a first time homebuyer and they’d qualify for a 3% down conventional loan. The FHA loan may still be more attractive since the monthly mortgage insurance payment for an FHA loan is now lower than the monthly mortgage insurance payment for a 3% down conventional loan. Also, the interest rate would be lower on the FHA loan.

That is a lot to consider, which is why you should consult a professional who can ask you questions about your purchase, find out how long you plan to stay in the home, and if you plan on aggressively paying down the loan balance. The answers will ensure you choose the right loan for you situation.

Whether a first time home buyer or an experienced buyer, if you are buying in the state of Georgia, I’m happy to help. Contact me today to get started and we’ll get you into your new home.

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FHA Mortgage Insurance

December 16, 2014

blog-author-clayjeffreys3

In a recent post, I mentioned how buying a home using a conventional loan with a 3% down payment helps avoid ridiculously high mortgage insurance payments associated with FHA loans. What makes FHA mortgage insurance payments more expensive than conventional loans?

Due to the housing and foreclosure crisis, FHA continually increased their monthly mortgage insurance payments to help cover their losses from FHA insured homes that went into foreclosure. Prior to the crisis, the monthly mortgage insurance rate was 0.50% of the loan amount per year. After 5 straight years of increases, it is now at 1.35% of the loan amount per year.

Great. What does that mean?

Let’s take a look at some numbers comparing FHA mortgage insurance to a conventional loan with 5% down and also a conventional loan with 3% down.

  • FHA – on a $250,000 purchase price, the total loan amount for an FHA loan would be close to $245,500. If you take 1.35% of that loan amount, you get $3,313 for the year. Divide that out by 12 months, and the monthly mortgage insurance payment is about $276 per month.
  • Conventional 5% down – assuming the buyer’s credit score is 720+, the same $250,000 purchase price with 5% down would give us a monthly payment of $122 for mortgage insurance. The FHA loan is more than double that amount per month.
  • Conventional 3% down – again, assuming a 720+ credit score and a $250,000 purchase price with 3% down, the monthly mortgage insurance payment would be $222. That is about 25% less per month compared to an FHA loan.

The monthly mortgage insurance payments for conventional loans can be noticeably lower than FHA loans. I haven’t even got into the fact that all FHA loans come with an upfront mortgage insurance premium of 1.75% of the loan rolled into the loan amount (about $4,200 rolled into the loan amount on a $250,000 purchase price). Nor have I covered how, in most cases, FHA mortgage insurance is permanent.

I encourage my clients, when they qualify, to use a conventional loan to purchase a home because conventional mortgage insurance is typically lower per month, there is no upfront premium, and the mortgage insurance is not permanent. That said, sometimes an FHA loan is still the way to go.

Looking to buy a home in the state of Georgia but are unsure if you should use a conventional or FHA loan? Contact me today to get started. I’ll go through the pros and cons of each, and we’ll run the numbers to see which option makes the most sense for your specific situation.

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Mortgage Insurance

November 20, 2014

blog-author-clayjeffreys3

Last time our videos focused on the monthly mortgage payment. Today, we will focus on something that could be part of a monthly mortgage payment – mortgage insurance. There are a lot of components that go into mortgage insurance. Watch the video to learn more about it!

To contact any of us at Dunwoody Mortgage Services, click here!

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Mortgage Mythbusting

October 21, 2014

blog-author-clayjeffreys3

Continuing our educational series. Today, we’ll focus on mythbusting.

To contact any of us at Dunwoody Mortgage Services, click here!

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