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 The new world of Private Mortgage Insurance. (PMI)

 

Over the past few years we have seen so many changes in the mortgage world, the most obvious one is the return of PMI. We spent years doing loans with piggy back seconds cheating the system into thinking that there was 20% down.  The days of the 80-10-10 are gone, and the days of the High LTV second are gone as well.

PMI at one time was a simple thing. Most of us that have been in the business for more than 10 years can quote you what it was for a 5% or 10% down deal "way back when".Times have certainly changed as PMI has become a moving target and the cost of PMI fluctuates not only with down payment, but with credit score and property type as well. PMI changes have caused Guideline changes for Mortgage programs and have been causing a lot of confusion in the industry.

There are 6 major players in the Private Mortgage Insurance world and each has their own guidelines. The list below is a snapshot of what can and cannot be done with PMI, and in some cases what is only a "maybe" when you see only 2 of the 4 companies doing certain loan types now, I would not doubt that they will change their minds fairly quickly and not want to be adversely selected. Here are the bullet points:

PMI and Credit Scores:

• 2 of the 6 Companies have a minimum credit score of 680
• 1 has a 660 minimum score
• 3 allow below 660, BUT "subject to expanded criteria rates or to Nonstandard rates" (That means OUCH!)

PMI and Ratios:

• 3 of the 6 companies have maximum back end ratios (or DTI Ratios) of 41%
• 3 max out at 45

(DTI: Debt to income, so the mortgage payment + Debt can be equal to no more than 41 or 45% of the gross Monthly Income)

PMI and Condos

• 4 of the 6 companies require at least 10% down on condos
• 2 allow for 5% down, but in each case SIGNIFICANT restrictions apply. Each PMI company has their own list for declining markets which may increase the minimum down payment.

PMI and Second/Vacation Homes:

• 4 of the 6 companies will not insure Second homes
• 2 Require 10% down
• 1 requires Minimum 720 credit score
• None allow second homes in Declining markets
• "Significant restrictions apply"
• BEWARE THE IDES OF MARCH! March 15 all PMI companies are dropping second homes. There is rumor that one company will continue with 15% down for their premier lenders, but that is yet to be seen.

PMI and Investment properties:

• Not eligible AT ALL for any of the PMI companies

PMI and the new loan limits above $417,000:

• All 6 require a Minimum 10% down
• 2 require a minimum credit score of 740
• 2 require a minimum credit score of 720
• 2 require a minimum credit score of 700

PMI and Multi Family Homes:

• 3 of the 6 companies Allow 2 Family owner occupied at 5% down with a 680 Minimum credit score
• 3 do not allow 2 family homes at all
• 3&4 Family homes are not eligible at all for PMI with any company

The above are just the bullet points we all run across every day. There are additional restrictions for each level, and if your market happens to be considered a declining market... Look Out! The minimum credit scores go up, and they are requiring larger down payments as well.  PMI guidelines are changing frequently, more than likely companies will continue to tighten their guidelines as we move forward until things get more "normal" and we stop hearing the "F" word.

There is the bright side to this story, FHA.  Do not shy away from an FHA loan.  Here are a few quick comparisons:

• FHA's MIP (Mortgage insurance premium) does not change based on credit score
• FHA has a discount on MIP at 5% down
• FHA allows as little as 3.5% down (USDA loans allow for less, but not common in all areas)
• FHA MIP is often MUCH cheaper than PMI
• FHA has more flexible ratios, and more flexible credit score requirements
• FHA Loans will not have a huge interest rate add on for Low credit scores (conventional loans can have significant interest rate add ons beginning with credit scores below 740)

I could continue this FHA list but that would be an entirely different blog!

Bottom Line: Less than 20% down, there willbe PMI, in some cases there may even be PMI with 20% down. There are not any sustainable options to avoid PMI these days. A few lenders do still allow Lender funded (IE: Higher Rate)but you are still paying for PMI; you just do not see it.  Also, do not be surprised if you have a buyer with 20% down and we recommend they go FHA. A 660 Credit score, (or worse a 659), will often be much better off with an FHA loan VS a conventional loan.  Make sure you are working with a Trusted lending PARTNER to be sure they have your clients best interests in mind, and are aware of the ever changing mortgage world.

 

Have a great week!

Rob

Robert Rauf

www.RobertRaufHomeLoans.com   or my blog: http://activerain.com/blogs/rrauf

(732)223-1630 x102

Real Estate Mortgage Network

 

 

 

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