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seller concessions

Conventional PMI Options

Mortgage-InsuranceIt’s common knowledge that home mortgage loans with less than 20% down typically need to be covered by some sort of mortgage insurance.

For conventional loans, it is usually referred to as “private mortgage insurance” (PMI), for government loans (FHA, VA and USDA), the insurance is some sort of program offered by the federal government that also has costs associated with it like PMI, but it has a different name.

While I am licensed to do all of these types of mortgages, for this post’s purposes, I will write only about the insurance that is private – PMI for conventional loans.

There are many different ways to insure a conventional mortgage. All of which are types of PMI. Each one is shown below.

Borrower Paid – Monthly
This is the PMI you probably know about; it’s simply a monthly insurance fee that you pay each month until your loan is eligible to be uninsured. For a well-qualified credit scenario, this tends to cost about .05% of your loan amount each month; for a $200K loan, that’s about $100 a month.

Borrower Paid – Single
This is a one-time fee paid at closing by you or by the home-seller that covers the loan until it is paid in full. For a well-qualified credit scenario, this tends to cost about 1.7% of your loan amount; for a $200K loan, that’s about $3,400. If you do the math, you will see that $100 per month versus $3,400 paid once has a break-even point of 34 months. This means that this option is typically much better than “Borrower Paid – Monthly” if you intend to keep the loan long-term. It’s of incredible value if you can get your seller to cover that cost for you at closing (have your real estate agent talk to me before writing your offer)!

Lender Paid – Single
This is the same as “Borrower Paid – Single” but the lender increases your rate to cover that cost – typically the increase is 0.375%-0.75% in rate depending on the loan amount and the credit-scenario. This is a great way to make your mortgage insurance tax deductible. Presently, mortgage insurance is not tax deductible. If we build it into your rate, it becomes interest and, in most cases, will become a tax deduction for you. Check with your CPA to make sure you can write it off (I have to say that because I am not a CPA)!

Borrower Paid – Split Premium
This is a hybrid of the first and second options above; you or your seller pays a one-time fee at closing of 1% of the loan amount and you then pay a monthly cost of about 0.0275% each month for well-qualified credit borrowers. In dollars, using the $200K loan amount example above, this would be $2,000 one time and about $55 per month.

To get numbers for each of these options for your specific loan scenario, whether you are in Wisconsin or California, please be sure to contact me for more information.