No PMI Loans in Delaware?
Can you get a loan with no Private Mortgage Insurance (PMI)? This depends on the type of mortgage loan you are applying for financing such as FHA Loan, VA Loan, USDA Loan, Conventional loan, or a Non-QM loan. You can get a loan with no monthly mortgage insurance if that is what you are looking to obtained. In order to understand what you are options are, we need to start by explaining PMI. If you have questions or want to get started on a mortgage pre-approval, call us at 302-703-0727 or GET STARTED ONLINE
What is PMI (Private Mortgage Insurance)?
PMI is foreclosure insurance for the Lender and only benefits the Lender. In the event you default on your loan, the insurance company will pay the Lender. PMI is usually required on loans with less than a 20% down payment. When you borrower more than 80% of the purchase price you are a much higher risk to the lender because there isn’t enough equity for the lender to foreclose and recover all of their money and fees. Because of this, the lender requires the borrower to pay for an insurance policy for the lender to protect the lender in case the borrower defaults on the loan. PMI became tax deductible in 2007.
How Much Does PMI Cost?
Typically PMI ranges from 0.23% to 1.75% of the loan amount and is usually paid monthly along with other items such as your property taxes and homeowners insurance. The PMI can be much higher if you have bad credit and/or you receive a level adjustment from desktop underwriting. This can make your PMI be as high as 1.46% of the loan amount. The cost of the PMI is determined by the type of loan (adjustable vs. fixed), the term of the loan (30 year vs. 15 year), the amount of down payment (0%, 3%, 5%, 10% or 15%), your credit score, and the type of DU approval you get. The more down payment you have the lower the monthly PMI.
How can I avoid PMI
There is really no such thing as a NO PMI LOAN for conventional loans with Loan-to-Values more than 80%. What lenders do when they advertise this is give you what is called Lender Paid Mortgage Insurance (LPMI). This is accomplished by giving you a higher interest rate, so in essence you are still paying it by paying more interest per month than a loan with PMI. Sometimes this can raise your rate as much as 1%.
There are really only two ways to avoid PMI altogether on conventional loans. One is to make a down payment of at least 20%. If you do not have 20% to put down, you may be able to utilize a piggy back loan which is called a second mortgage. This can be an 80/20 which would be for a 100% financing, an 80/15 for 95% financing, an 80/10 for 90%.
Please don’t be taken by unscrupulous sales people who try to say because of your credit score you don’t have to pay mortgage insurance. You pay for it one way or another. If it is a conventional loan, you pay either PMI or have a higher rate with LPMI. FHA loans all require MI (mortgage insurance) regardless of the LTV. So even if you are under 80% with FHA, you must have mortgage insurance. VA or Veterans Loan is the only one of two loans that don’t have monthly mortgage insurance without raising your rate. VA loans charge you a one time upfront mortgage insurance that you can roll into the loan but don’t require a monthly mortgage insurance premium. The other loan that is 100% financing without PMI is a USDA Rural Housing Loan.
If you have questions or would like to speak with us about planning a mortgage please feel free to call us at 302-703-0727 or APPLY ONLINE
John R. Thomas – Certified Mortgage Planner -NMLS 38783
Primary Residential Mortgage
302-703-0727 DE Office / 610-906-3109 PA Office / 410-412-3319 MD Office