PRIVATE MORTGAGE INSURANCE IS IT REQUIRED

PRIVATE MORTGAGE INSURANCE IS IT REQUIRED

The answer is...It depends.

Certain loans, such as FHA and USDA, require PMI no matter the down payment you put down.

On conventional loans, PMI is required if you are putting less than 20% down.

Now, PMI can take different forms. What most people are familiar with is monthly PMI, which you pay until the loan balance reaches 78% of the original purchase price.

But there are other ways to pay the PMI and some of them are more advantageous than monthly PMI payments. You could take out a first mortgage for 80% of the purchase price and a 2nd mortgage for up to 10%. This is called an 80-10-10 loan. The rate on the 2nd is usually going to be higher than on the primary mortgage, but it may result in a lower payment then 1 loan with monthly PMI. The other way to avoid monthly PMI is something called SINGLE PREMIUM PMI. With this, you pay a lump sum up front (could range from .70% to 3.27% of the loan amount, depending on LTV and credit score) OR you take a higher rate on the loan (.125%-.75%, again depending on LTV and credit score). Again, this sometimes results in a lower overall payment than monthly PMI.

In general, the higher your credit score is, the better terms you will qualify for on PMI whether you elect to pay it monthly or in another way. As a borrower you just need to compare them side by side to see what is best. Hope this helps!

- Tonytheloanguy - Oct 6, 2015 at 4:24PM
1 Answer

Tony's comments are accurate. Single premium PMI can also be done as LPMI, which stands for Lender Paid Mortgage Insurance. It's basically single premium mortgage insurance that is paid for by an adjustment to the rate and/or closing cost credit. The lender pays the mortgage insurance premium, rather than having it be charged to the borrower at closing. I just closed an 85% rate/term loan with LPMI, and the rate we closed at was the same as originally disclosed (when we projected no PMI would be required), the lender credit was just slightly lower.

One item to remember on LPMI, if the actual rate ends up higher (rather than just a lower lender credit) is that the rate doesn't change when equity reaches 20% (unlike monthly PMI, which ends then). It's seldom a rate adjustment of more than .125%, but it is for the life of the loan, rather than until a certain equity level is reached.