Whenever you purchase a home with a down-payment of less than 20%, mortgage insurance is most likely going to be required by your lender. Government mortgages (USDA, FHA, & VA) all have their own mortgage insurance programs, but conventional mortgages backed by Fannie Mae and Freddie Mac require private mortgage insurance (PMI) provided by one of six private mortgage insurors in the country. Is lender paid mortgage insurance a good option for you?
Let’s explore the Lender Paid PMI option and figure out the pros and cons:
As we saw above, LPMI is an acronym for Lender Paid Mortgage Insurance. However, this does not mean that it’s a free premium to you as a borrower. The mortgage lender pays a single premium for you at closing in exchange for a higher interest rate over the life of the mortgage loan, or the lender simply absorbs the risk of a lesser down-payment with the extra interest on the mortgage loan.
Your principal and interest payment will be higher with this option, but the overall payment could be lower since you’re eliminating the monthly mortgage insurance premium. In some cases, it could be much cheaper.
LPMI can have a couple of benefits:
It’s important to have your lender help you determine if your monthly payment will be lower with lender paid mortgage insurance.
It’s important to understand that there are some potential pitfalls with this option:
When you look at all of the potential options that are available for private mortgage insurance, it can be overwhelming to try and decide which is best for you and your family. LPMI can be cheaper monthly, monthly can be cheaper over the long-term, and a single paid premium can be a great option if you have some extra cash. Mortgage insurance premiums can vary widely according to your credit score, down-payment, debt-to-income ratio, property type, occupancy…well you get the drift.
Determining the best fit for you can be achieved with the expertise of a local mortgage consultant. If you would like a custom analysis of your scenario, please call me today or Apply Online to get a free Total Cost Analysis and figure out what’s best for you.