PMI, Avoiding Delays in Underwriting
Mortgage Insurance is necessary whenever a loan is above eighty percent of the value of the home using conventional financing. It is an insurance policy that consumers pay in case of default or non-payment. The monthly costs of the mortgage insurance (MI) policy vary depending on the loan parameters and the individual. Guidelines are ever-changing and this loan requirement demands its own underwriting procedures which may prolong your final loan approval, so be prepared!
It is rather odd that you are effectively paying a policy that would cover your inability to pay your monthly mortgage payment. But, it’s true. For an FHA loan, you will pay an MI premium no matter what loan amount or ratio. However, in conventional financing, the monthly premium decreases if you are closer to eighty percent of the value of home versus ninety-five percent. Income, debt, type of property, and several other aspects of the file are also considered while determining policy costs.
Over the last year, we have witnessed the MI companies make a come back. They loosened guidelines and decreased premiums over the past six months or so. Interestingly, most brokers and bankers are currently running into their critical observations of appraisal reports and income analysis. In many instances, they are asking for more comparisons for the appraisal or requiring explanations regarding income. In essence, conventional loans are being underwritten by two separate companies; the bank & the MI company, a separate third party entity that can ultimately deny your loan.
How can anyone avoid mortgage insurance? Simply stated, consumers would need to buy homes with at least a twenty percent down payment or take out a non-conforming loan (one that is not sold to Fannie Mae nor Freddie Mac). Non-conforming lenders usually add a point of interest to the Fannie Mae rates to build-in the additional risk of not having an insurance policy in place. Additionally, the loan to values may only max-out at ninety percent, so at least a ten percent down payment may be required to avoid the MI payment and MI underwriting, altogether. But if you want to take advantage of the greatest rates ever offered, then twenty percent down is the best option if you are trying to sidestep the need for MI.
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