Monday, June 18, 2012

PMI Mortgage insurance for Kentucky Mortgage Loans




Frequently Asked Questions about MI

What is private mortgage insurance?

Private mortgage insurance provides a significant layer of protection to lenders, helping them reduce — and sometimes eliminate — foreclosure losses on low-down-payment loans. As a result, private MI helps families buy homes with minimal cash out of pocket, making the American dream of homeownership attainable sooner than otherwise possible.

What's the difference between private MI and FHA insurance?

Private MI is the private sector alternative to Federal Housing Administration (FHA) mortgage insurance, which is a government program backed by taxpayers. Private MI typically may be cancelled sooner than FHA.

Are private mortgage insurance and mortgage life insurance the same thing?

No. Mortgage life insurance pays off a mortgage if the homeowner dies or becomes disabled.

Are Private MI and Homeowners Insurance the same thing?

No. Homeowners' insurance protects homeowners from loss due to theft, fire or other disaster. Private MI protects the lender and investor from loss, not the borrower.

Why is private MI needed?

Experience shows that homeowners with less than 20% invested in the cost of a home are significantly more likely to default, making low-down-payment mortgages riskier for lenders and investors. To offset that risk, lenders and investors typically require mortgage insurance for loans with down payments of less than 20%.

How do borrowers benefit from private MI?

Private MI makes it possible for families to buy homes with a low down payment, helping them become homeowners sooner than otherwise possible.
  • For first-time buyers, private MI helps clear the biggest hurdle to homeownership: coming up with a 20% down payment.
  • For trade-up buyers, private MI allows them to consider a wider range of homes and leverage their investment in their homes.
  • Both first-time and move-up buyers can benefit by putting less money down and keeping cash for other uses: making investments, paying off debt, or paying for home improvements or emergencies.
Are MI premiums tax-deductible?

Borrower-paid MI premiums are tax-deductible through the year 2011.
Households with adjusted gross incomes of $100,000 or less will be able to deduct 100% of their MI premiums. The deduction is reduced by 10% for each additional $1,000 of adjusted gross household income, phasing out after $109,000.
Married individuals filing separate returns who have adjusted gross incomes of $50,000 or less will be able to deduct 50% of their MI premiums. The deduction is reduced by 5% for each additional $500 of adjusted gross income, phasing out after $54,500.
The deduction is not restricted to first-time homebuyers.

Who orders the MI?

Generally, MI is ordered by the lender while the loan is being underwritten. The loan originator consults with the home buyer to determine which loan product best meets their needs, and then determines the MI requirements.

How much does private MI cost?

Premium prices vary. They are based on the size of the down payment, the borrowers' credit score, type of mortgage and amount of insurance coverage. Typically, premiums are included in the monthly mortgage payment.

Who determines the amount of MI coverage needed for the loan?

The investor typically determines the amount of MI coverage required for each specific loan product. Since Fannie Mae and Freddie Mac are the most prominent investors in the marketplace today, they set the standard minimum coverage requirements for the industry. We recommend lenders consult with their investors to determine the appropriate amount of coverage to order.
Can private MI be cancelled?

Most private MI programs allow for cancellation. Mortgage lenders/investors will typically permit the cancellation of private MI when the homeowner builds up enough equity in the home.
Investors establish criteria for private MI cancellation, and most will cancel private MI upon request for borrowers who have a good payment history, more than 20%-25% equity, and have had the mortgage for at least two to three years.
Lender-paid MI may not be cancelled by the borrower since the lender pays the premium.
Under federal law, private MI on most loans made on or after July 29, 1999, will end automatically on the date the mortgage is scheduled to reach 78% of the original value of the house. See our Homeowners Protection Act brochure (.pdf) for more details.

Are MI premiums refundable?

Although refundable premiums are available, generally nonrefundable premium plans are selected for monthly payment policies. Mortgage insurance premiums paid in a single sum at closing or annually may be partially refundable upon cancellation, but nonrefundable premiums are often selected in order to reduce closing costs for borrowers. For all premium plans, a portion of the premium may be refundable if the policy is cancelled under the Homeowners Protection Act.    













I have lived in my home for 5 years and am in the process of selling it. I had to buy PMI insurance because I did not have 20% down. Am I entitled to any type of refund once I sell the house?




Entitlement to a refund and the amount would depend on the mortgage insurance plan type and the refundable or non-refundable/limited option chosen at origination. Your best bet is to ask your lender directly, as there are many different mortgage insurance plans and combinations.



I think banks are being very greedy in demanding a secured loan plus PMI and still wanting a perfect credit rating for 7 years. My husband and I are trying to buy a home. We have a good credit rating, but not perfect credit for 7 whole years. If you guarantee the loan, what is their problem in granting it?



Mortgage insurance does not guarantee the loan, it only insures a designated portion (commonly only 12-30%) of the loan against default. The combinations of loan characteristics (credit, collateral, MI, etc.) are established as requirements by investors. Loans usually end up in mortgage backed securities. The mortgage securities may be purchased by investors, for example to go into Individual Retirement Accounts (IRA's), 401K plans, etc. The investment funds for IRAs, 401Ks, etc., have risk and return requirements which ultimately dictate the loan characteristics.



If mortgage insurance is canceled, are any pre-paid premium amounts refunded (particularly if they were originally paid by adding them to the loan amount)?



If all the mortgage insurance was financed at the time of origination and is canceled prior to it's maturity you may be entitled to a refund if the refundable option was chosen at time of origination. However, if the no refund/limited option was chosen no refund is due.



If a borrower currently has an FHA loan w/MI, after the LTV has reached 80% or less can the MI be canceled?



It is best to refer back to your lender for specific information on FHA loans.

Effective April 18, 2011 The charts below illustrate the 25 basis points (bps) increase in the Annual Mortgage Insurance Premiums. There are no changes to the Upfront Mortgage Insurance Premium (UFMIP). It is anticipated that this increase will have minimal impact on borrowers but will significantly strengthen the capital position of the MMIF.







The increase in the Annual Mortgage Insurance Premiums for forward mortgage amortization terms is effective for case numbers assigned on or after April 18, 2011.






Upfront Premiums:


Upfront premiums will not change on April 18, 2011. FHA will continue to charge an upfront premium in an amount equal to the following percentages of the mortgage:






Purchase Money Mortgages and Full-Credit Qualifying Refinances = 1.00 percent


Streamline Refinances (all types) = 1.00 percent


Home Equity Conversion Mortgages = 2.00 percent


Annual Premiums:


Annual premiums will increase by 0.25% effective April 18, 2011.






For FHA traditional purchase and refinance products, the annual premium, shown in basis points below, is to be remitted on a monthly basis, and will be charged based on the initial loan-to-value ratio and length of the mortgage according to the following schedule (effective with FHA case numbers assigned on or after 4/18/2011):






LTV Ratio Annual Premium for over 15 Years and up to 30 Years LTV Ratio Annual Premium for Loans 15 Years and Under


95.00% and Under 1.10% 78% and under 0.00%


95.01% and Over 1.15% 90.00% to 78.01% 0.25%


90.01% and Over 0.50%






How long will I have monthly FHA mortgage insurance? Years will be determined when the loan balance equals 78% of the initial sale price or appraised value, which ever is lower, provided the mortgagor has paid the annual mortgage insurance premium for at least 5 years.

Can you give an example of how the mortgage insurance escrow's get applied to the payment?



Your lender collects moneys on escrow and remits to PMI when the premium is due. Typically, on an annual premium plan, the lender collects 14 months premium at closing. Twelve months of the premium is paid to PMI as the initial premium. The remaining two months is used to start the escrow account. The lender then collects 1/12 of the renewal every month thereafter. It is hard to give a general rule on a monthly premium plan. The plan was developed in 1994 and lenders have developed unique escrow procedures.



Premise: Mortgage insurance covers the lender for the difference between the loan amount and 80% value of the property. So for a borrower who puts 10% down, in effect mortgage insurance covers the 10% difference. What are approximate rates in premium say per $1000 dollars? Does credit history have a bearing on the premium? Can the borrower negotiate the premium?



PMI actually covers the lender for a percentage they designate. The percent of coverage is usually driven by the investor's (often, Fannie Mae or Freddie Mac) requirements. Therefore, the approximate premium per $1000 varies based on the required coverage. The premium is fixed based on plan type (loan to value, loan type, loan term, etc.) and not related to individual borrower characteristics. Therefore, the premium is not negotiable.



Are mortgage lenders supposed to provide borrowers with information on the conditions when they can cancel mortgage insurance? Are these conditions supposed to be in the loan documentation? If the borrower pays mortgage insurance monthly, and his equity goes up, should his premiums go down? Is the mortgage lender supposed to notify the borrower when he reaches 20% equity? Which states have laws on this subject? Can the borrower choose the mortgage insurance company or does the lender do that?



Because of the wide variation in lender, investor and state requirements, it is necessary to consult your lender on these questions. Keep in mind when considering mortgage insurance issues that the lender is the insured, not the borrower.



Would mortgage insurance be of use to lenders to help approve loans for higher risk (i.e. self employed) individuals?



PMI does insure loans made by lenders to self employed borrowers. However, it is unlikely that coverage would have any effect on the lender's ability to offer such loans. Generally, mortgage insurance is required due to low down payment and associated risk and not related to borrower credit characteristics or history.



Does mortgage insurance apply for investor properties?



PMI only insures loans on owner occupied residential properties (1 to 4 units).



What is private mortgage insurance?



Mortgage insurance is a type of insurance that helps protect lenders against losses due to foreclosure. This protection is provided by private mortgage insurance companies, and allows lenders to accept lower down payments than would normally be allowed.



Mortgage insurance also enables lenders to grant loans that would otherwise be considered too risky to be purchased by third party investors like the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). The ability to sell loans to these investors is critical to maintaining mortgage market liquidity, which in turn, allows lenders to continue originating new loans.



Is private mortgage insurance different from other kinds of insurance associated with mortgages?



Private mortgage insurance protects the lender in the event of borrower default and subsequent foreclosure on the home. FHA and VA insurance also protect the lender against borrower default under a government program rather than through the private enterprise system.



Credit insurance, sometimes called mortgage insurance, is life insurance coverage that pays off the mortgage in the event a borrower dies, becomes disabled, or incurs loss of health or income. Fire, liability, and theft insurance cover the homeowner from losses according to the terms and conditions of their respective insurance policies.



How small can my down payment be?



Private mortgage insurance makes it possible for a home buyer to obtain a mortgage with a down payment as low as 5% and for low-to-moderate income home buyers as low as 3%. Such mortgages are popular today because potential home buyers are not able to accumulate the 20% down payment that is generally required by lenders if a loan is not insured.



Who pays for mortgage insurance?



The lender does, although they will generally pass that cost on to the borrower. Typically, a portion of the mortgage insurance premium is paid up front at closing, and the rest is paid as part of the monthly mortgage payment.



What are the payment options for mortgage insurance?



Private mortgage insurance can be paid on either an annual, monthly or single premium plan. Premiums are based on the amount and terms of the mortgage and will vary according to loan-to- value ratio, type of loan, and amount of coverage required by the lender.



Under an annual plan, an initial one year premium is collected up front at closing, with monthly payments collected along with the mortgage payment each month thereafter. Monthly plans allow a borrower to pay the lender only 1 or 2 months worth of premium at closing, and then on a monthly basis along with the regular mortgage payment. Under a single premium plan, the entire premium covering several years is paid in a lump sum at closing. Typically, home buyers choose to add the amount of the lender's mortgage insurance premium to the loan amount. By doing this, home buyers can reduce their closing costs and increase their interest deduction.



Below are examples of how a variety of mortgage insurance premium plans could affect your mortgage payments:



Annual Plan Monthly Premium

Plan Single Premium

Plan (financed)

Loan Amount(*) $150,000 $150,000 $150,000

Cash for MI at closing $750 $56 $0

Financed Premium $0 $0 $3,000

Total mortgage amount $150,000 $150,000 $153,000

Monthly P&I(**) $1,317 $1,317 $1,343

MI Renewal $43 $56 $0

P&I plus monthly MI $1,360 $1,373 $1,343



(*)Loan amount of $150,000; 10% down payment; 30 year fixed rate loan at 10% interest.

(**)P&I stands for monthly Principal and Interest on the mortgage.



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Can mortgage insurance coverage be canceled?



Mortgage insurance is maintained at the option of the current owner of the mortgage. In many cases, the lender will allow cancellation of mortgage insurance when the loan is paid down to 80% of the original property value. However, the degree of equity in the home is not the only factor that a lender may take into consideration. Note that the law in certain states requires that mortgage insurance be canceled under some circumstances.



How does private mortgage insurance differ from FHA insurance?



Although the insurance protection concept is similar, there are differences between private mortgage insurance and FHA. FHA insurance is a government-administered mortgage insurance program that does have certain restrictions. FHA has maximum regional loan limits that are lower than those with private mortgage insurance. FHA may be more expensive, takes longer to receive approval, and has fewer payment plan options. FHA insurance lasts for the life of the loan, unlike private mortgage insurance which is cancelable in most circumstances. FHA is a good choice for some borrowers with credit history problems that might need special assistance.





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