Posts Tagged ‘mortgage insurance premium’

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.

 

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!! 

 

 

 

3% Down and a Great Interest Rate!

April 24, 2017

National mortgage giant Fannie Mae offers the Home Ready conventional loan program that can be very helpful for qualifying home buyers.  Home Ready enables qualified buyers to obtain a mortgage with a 3% down payment, so it’s great for people with limited available cash.  In addition, when the buyer has an average credit score, Home Ready provides lower interest rates and mortgage insurance premiums relative to standard conventional loans.

One important point is that this program is NOT limited to first time home buyers.  If you have owned a home before or if you have an ownership interest in another property, you may still qualify for a new Home Ready loan, as long as you plan to occupy the new home as your primary residence. 

Home Ready requires that at least one of the home buyers complete an online home buyer education course.  This course costs $75 and takes about 4 to 6 hours to complete.  The course topics include:

  • Home affordability and budgeting
  • Credit ratings and credit improvement
  • Real estate agent selection
  • Mortgages
  • Offer letters
  • Home inspections
  • The closing process

The prospective home buyer will receive a certificate of completion after passing a final quiz and submitting a feedback survey.   Passing the quiz requires a score of 80%, and the buyer receives three attempts to pass the quiz.  If the buyer does not pass the quiz in three attempts, an additional approximately 30 minute telephone educational review session is required.   After obtaining the certificate of completion, the buyer should send a copy to his / her selected lender.

Here are a couple of additional program benefits:

  • Non-occupant borrowers are permitted.
  • Non-borrower household income from a family member (parents or siblings, for example) can be used to support a higher debt to income ratio than the borrower can obtain alone.

Future posts will cover Home Ready’s geographic income limits, and we will give an example scenario to highlight the program benefits.  But keep this in mind for now, if you want to buy a home in Georgia, but your credit score is less than great and you don’t have much available cash for a down payment, Home Ready could be the program that makes home ownership a reality for you.  Call me to discuss Home Ready and other options.  Or if you have a friend or family member who could benefit from Home Ready, forward this blog post to them.  We at Dunwoody Mortgage love to make home ownership a reality for everyone, and it’s especially fun for people who initially think they can’t qualify!

 

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 Related Tax Deductions

March 5, 2013

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Spring is just around the corner, and you know what that means – flowers bloom, temperatures rise, and taxes have to be filed!

We all know about two major deductions you get when owning a home – the mortgage interest deduction and deducting your property taxes on your primary residence. There is another one out there that not everyone is aware of – deducting your mortgage insurance.

For the past several years, mortgage insurance has been tax deductible. This deduction is on the list of deductions that are currently under annual review by the government for renewal. The good news is – the mortgage insurance deduction has been renewed again for the 2012 and 2013 tax filing years.

How does one qualify:

  • must be a homeowner and have mortgage insurance on your mortgage (either private mortgage insurance from conventional loans OR mortgage insurance premiums from FHA/USDA loans)
  • must file itemized federal tax returns
  • annual adjusted gross income must be below $100,000 for joint filings ($50,000 for single file). Deductions are available if adjusted gross income exceeds those limits, but it begins to phase out.

What should you do? First, talk to your tax professional to see if you qualify to deduct your mortgage insurance payments from your taxable income on your 2012 tax returns. Also, if you have owned a home for the past couple of years, review your last few years tax returns to see if you eligible for the deduction AND took advantage of the deduction on previous years tax returns. You may be able to file an amended tax return to get more money back from past tax returns.

If you are a homeowner this tax season, you may be able to deduct three expenses from your taxable income – interest on your home mortgage, property taxes on your home, and mortgage insurance. To find out if it applies to you, consult your tax pro today. You can always use the extra cash!!

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Coming soon – FHA changes

January 7, 2013

blog-author-clayjeffreys2
I’m sure no one saw this one coming (lots of sarcasm here).

For the past several years, FHA has annually increased their monthly mortgage insurance. Toward the end of 2012, as posted here on this blog, FHA was given the approval to dramatically increase their monthly mortgage insurance. It seems the probable increase isn’t going to be that bad.

The actual proposed changes include increasing the monthly mortgage insurance from 1.25% of the loan amount annually to 1.35%. That isn’t a huge change. The BIG change is this…

Currently FHA mortgage insurance falls off once a borrower has paid at least 60 mortgage insurance payments AND has 22% equity in the home. Moving forward FHA loans could require mortgage insurance for the life of the loan. If approved, it doesn’t matter how much equity you have in your home, you’ll be paying mortgage insurance as long as you have the mortgage.

That is a dramatic change. Why would FHA be considering a change this dramatic? As with most things in life, it all has to do with money.

Also discussed on this blog, FHA exhausted its reserves toward the end of 2012. This doesn’t mean FHA can’t function. What it means is they don’t have the reserves the government say they “should” have  based on the amount of FHA loans they have financed. FHA is still funding loans and running its day-to-day operation. They are just lacking reserves.

Well, one way to get rid of this problem is making mortgage insurance payments never go away. That would certainly help. It isn’t official yet, but once FHA officially announces their changes, I’ll be here to update you.

In the meantime, if you are thinking of buying a home and needing to use an FHA loan to do it, now is the time to get going. We don’t know the exact changes, but we know the terms will be worse than they are today. If you are buying a home in Georgia, contact me to get the prequalification process underway.

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FHA Exhausts Reserves

November 16, 2012

It finally happened… FHA and the Department of Housing and Urban Development are reporting their reserves are now exhausted with a loss coming at the end of the 2012 fiscal year. It was bad enough at the end of the 2011 fiscal year with reserves at just 0.24%. Now FHA is in the red. For the first time in FHA’s 78 year history, they may need a tax payer funded bailout.

How did this happen? When the financial crisis took hold in 2007-2008, subprime mortgages disappeared. Borrowers who could only qualify to buy a home using a subprime loan turned to FHA loans and their minimal qualifying standards. At the time, FHA had no credit score requirements and could use alternative forms of credit to qualify for the loan.

The increase in FHA loans was so dramatic, that many began to wonder if FHA loans were becomming the new subprime mortgage. I blogged about that possibility in the summer of 2008.

Fast forward a couple of years… with the increase in the number of FHA loans being originated coupled with the record number foreclosures, FHA was paying out way more than it was taking in from their mortgage insurance premiums. FHA knew this was coming and has worked to increase the amount of money coming in on the newly originated loans. FHA has increased the monthly mortgage insurance rate annually for the past several years, and looks like it will happen again soon.

FHA is currently saying a bailout may not be needed. Just because they do not have reserves doesn’t mean they don’t have the money to pay new claims OR that they need money from the government immediately. Until they need a bailout to continue to insure new loans, this isn’t a crisis… more of a concern. That said… the day could be coming.

Moving forward, it is only a matter of time before the monthly mortgage insurance rates go up again. If you are waiting to buy a home OR refinance an existing mortgage using an FHA loan, it would be good to get started now. Once FHA announces a start date for the increase in monthly mortgage insurance rates, there will be a rush to close on FHA loans under the current guidelines.

Avoid the rush by getting started today. If you are buying a home in the state of Georgia, I can help you get underway!

Why the MI increase on FHA loans?

October 2, 2012

Since my last post, I’ve received a few emails inquiring why FHA continues to increase the mortgage insurance on their loans. Does FHA even want to lend money anymore?!? I’ve blogged about some of the reasons for the changes in a few posts over the past year. Here is a consolidated version of those posts for easy reading.

  • First and foremost, FHA is running out of money. They are at the lowest point ever in their history, and it isn’t getting better. Since FHA fully guarantees the loans they issue, with all of the foreclosures, the “bank” is running out of money. FHA has always been self funded. Given the current state of the federal budget in D.C., now isn’t the time to look for a handout. So they will raise money the only way they know how – by increasing the monthly mortgage insurance premiums.
  • FHA wants to go back to being the niche program they were AND designed to be in the mortgage industry. Prior to the housing burst, FHA made up less than 10% of the originated mortgages. During the past few years, they have climbed to as much as 50% of the loans being originated. FHA never intended their loans to be used in this way. By increasing the monthly mortgage insurance, it makes conventional loans with 3% or 5% down look much more appealing.
  • Eventually, the government wants private lenders to begin working their way into the mortgage industry. If the monthly mortgage insurance is raised to 2.05% (up from its current 1.25%), at some point other companies will come in and say “we’ll do that deal, but only charge 1.50% annually on mortgage insurance…” or something along those lines. Ideally, this would happen to FHA and conventional loans so the government doesn’t have to keep backing Fannie and Freddie either. At this point, we are a long way from this taking place. That said, could this be the start of moving the mortgage industry in that direction?

While there are a few reasons for the increase, the most pressing reason is the lack of money to fund FHA. If they run out of money, then FHA loans go away entirely. While the government would like to see the number of newly originated FHA loans decrease, having FHA eliminated all together isn’t their goal. By increasing the monthly mortgage insurance, it should increase the money coming into FHA’s coffers while probably reducing the number of buyers using FHA loans to purchase their home.

Hopefully this post has shed some light on why FHA has annually increased their monthly mortgage insurance.

Another increase to FHA mortgage insurance?

September 20, 2012

You know FHA mortgage insurance is high when the monthly premium and mortgage rates are both in the 2’s! Yes, that is right. FHA mortgage insurance premiums may increase again. I say “may” because we do not know for sure whether or not they will be increased. What we do know is that Congress approved a measure that will allow FHA to charge up to 2.05% for their annual mortgage insurance premiums.

Is 2.05% annually a lot? Yes, yes it is. That would be about double the cost of monthly mortgage insurance for conventional loans with 3% down (that program carries the highest mortgage insurance rates for conventional loans). It would also be the largest one time increase in the last several years. Here is a quick review of FHA mortgage insurance rates over the past few years using a $200,000 loan for comparison:

  • in 2008, the annual mortgage insurance rate was 0.50%, or $83 per month
  • in 2009, it increased to 0.55%, or $92 per month
  • in 2010, the increase went to 0.90%, or $150 per month
  • in 2011, mortgage insurance increased again to 1.10%, or $183 per month
  • the last increase was in 2012 when it jumped to 1.25%, or $208 per month

Just to put that into perspective, the monthly mortgage insurance in 2008 was $83 per month. For the same loan amount, it is now $208 per month. That is an increase of $125 per month.

What does 2.05% look like? For a 200,000 loan, the FHA monthly mortgage insurance would be $341 per month! Also, the latest act of Congress requires a minimum amount of 0.55% for FHA loans. Homeowners who bought a home with a 15 year fixed mortgage and a 22% down payment were exempt from the monthly mortgage insurance. This may no longer be the case.

Again, I’ve used the word “may” several times in this post because nothing is written in stone. All Congress has done is said that FHA can choose to increase mortgage insurance rates to 2.05% and establish a minimum on all FHA loans. As of this post, nothing has been officially announced.

What should you do? If you were thinking of buying a new home using an FHA loan, it would be a very, very good idea to buy that home prior to any additional changes taking place to the monthly mortgage insurance. With an annual increase each year for the past four years, one thing we know for sure is that FHA will increase it. The question is “when”, not “if.”

Looking to buy in the state of Georgia? If so, I’d be glad to help you get prequalified and ready to make an offer. Contact me today to get started!