Mortgage
Insurance Frequently Asked Questions
If you have a question for
us, or if your question has not been answered below, please
send an e-mail to Mid-Cities
Mortgage .
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 your
lender for specific information on FHA loans. PMI Mortgage
Insurance Co. does not insure FHA loans and therefore can
not respond regarding FHA policies.
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 our 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, such as PMI Mortgage Insurance Co., 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. PMI Mortgage Insurance Co. offers a single premium
plan called Super Single.
Below are examples of how a
variety of PMI Mortgage Insurance Co. premium plans could
effect your mortgage payments:
Annual Monthly Super Single
Plan Premium (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.
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.
This page is brought to you
by PMI MORTGAGE INSURANCE CO.
Do you have a question about
mortgage insurance or a comment about PMI Mortgage Insurance's
Frequently Asked Questions page, please send an e-mail to
Mid-Cities Mortgage
|
