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mortage insurance required for loans with downpayments under ? percent

what loans require mortgage insurance?
  • August 16 2010 - Sunnyvale
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Answers (4)

Best Answer

When is Mortgage Insurance Required?

The three main mortgage types include Conventional, FHA and VA.  Each have their own types of mortgage insurance each with a different name but all do the same thing – protect the lender for a portion of the mortgage in the case you default (foreclose).

Conventional

Conventional loans normally only require mortgage insurance when the down payment is less than 20%. Conventional mortgages are insured by private mortgage insurance companies and therefore the term most commonly used for mortgage insurance on conventional loans is PMI or Private Mortgage Insurance.  Because the insurance is done by private companies there are several ways mortgage insurance can be paid:

  • One time premium paid at closing
  • One time premium paid by the lender (normally increase your mortgage interest rate to cover the cost)
  • Monthly premiums

The rates for the mortgage insurance will vary depending on the down payment and the PMI company selected by your lender.  Generally the more down payment the less the mortgage insurance will cost.  The PMI companies each have their own rules and restrictions for the type of borrower and property they will issue mortgage insurance on.  Your mortgage lender will work to place your mortgage insurance with the right company for your situation.  Typically the rates between mortgage insurance companies are about the same so this should not be a huge area of concern for comparing or shopping around.  In the case you wanted to check out the rates for the mortgage insurance you can do so at a few mortgage insurance companies on their websites.  Here are a few:

FHA

FHA will always require some form of mortgage insurance.  No matter how much you put down FHA will always require a payment of up-front mortgage insurance.  The amount of down payment and the term of the mortgage selected will dictate the amount of mortgage insurance required to pay monthly.

Up-Front Mortgage Insurance is commonly referred to by the acronym UFMIP.  At the time this is being written the amount of the UFMIP for FHA loans is 2.25% of the base loan amount (Base Loan Amount = Purchase Price – Down Payment).

Effective October 4, 2010 there will be a change to UFMIP reducing it from 2.25% to 1.00%.  The monthly mortgage insurance premium will be then be .85% for LTV's less than 95% and .90% for LTV's greater than 95%.

UFMIP can be financed on FHA loans and typically is.  If your base loan amount was $200,000 and the UFMIP was 2.25% or $4,500 then the full loan amount payment would be based on would be $204,500.  Monthly mortgage insurance premiums will be based on the LTV and loan term.

Monthly Mortgage Insurance for FHA loans is commonly referred to as MIP and will vary based on the down payment and the term of the mortgage.  Here is a chart to help in figuring out the amount of the mortgage insurance (at the time this is being written):

Down PaymentLoans greater than 15 years
less 5%.55%
greater than or equal to 5%.50%
Down PaymentLoans less than or equal to 15 years
less 10%.25%
greater than or equal to 10%None

To calculate the monthly mortgage insurance you take the balance of the mortgage and multiply by the factor above.  That is the amount of the annual premium.  Just divide the annual premium by 12 and you will arrive at the monthly MIP.  For example, a $200,000 with 3.5% down on a 30 year fixed mortgage would have a factor of .55% or $1,100.  To calculate the monthly premium divide $1,100 by 12 to arrive at $91.67/mo.

  • August 16 2010
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Clay,

You are both great - I appreciate the information and thank you for your responsiveness.  :-)    Do you do any business in California?

Dave
  • August 16 2010
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dmaples, are you sure Scott should get best answer? I delivered a trite response to save space :>)

BTW, if you were wondering about VA or USDA, while neither have
" mortgage insurance" USDA and many VA loans have a Funding Fee which can be as high as 3.5%.  
  • August 16 2010
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FHA @ any LTV  and conventional over 80%
  • August 16 2010
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