A big thank you to this week’s guest blog writer, Allison O’Brien (NMLS: 242969) with Liberty Home Mortgage. Contact Allison O’Brien at 720-323-0947 or email: allisono@libertyhomeloans.com. Her website is here.
The best thing to happen to the Mortgage Industry in years
There is a great misconception that getting a mortgage is nearly impossible these days. Moreover, that a home mortgage requires a large down payment or a lot of equity in the case of a refinance. The truth is that in both purchase and refinance scenarios, getting approved for a home mortgage is not difficult for borrowers who can document employment, income and have debt to income ratios that fall within guidelines. With Liberty Home Mortgage, the down payment can be as low as 3.5% and can be sourced entirely from gift funds.
Mortgage Insurance Premium
While it’s ideal to avoid paying mortgage insurance, most borrowers these days do not have 20% to put down to eliminate it entirely. The good news is Liberty Home Mortgage offers many options for mortgage insurance with conventional financing that make it not only affordable, but potentially tax deductible as well.
Previously, the standard mortgage insurance program, and only option, was a monthly premium added to the principal, interest, taxes and insurance. This increased the total monthly payment, was factored into the debt to income ratio and could potentially limit a borrower’s purchase price point due to the higher payment and Debt To Income.
Recently, several new options have been introduced at Liberty Home Mortgage to decrease monthly Mortgage Insurance (MI) premiums and/or eliminate it entirely.
Liberty Home Mortgage Factors For MI
Liberty Home Mortgage insurance rate is determined by 2 main factors; loan to value and credit score. Borrowers with higher credit scores and higher down payments will pay the lowest rates available. This applies to monthly mortgage insurance, Split premium and Single Premium Financed mortgage insurance.
The 2 programs that offer reduced MI payments are the least well known and understood. The Split Premium and Single Premium Financed programs. Allison O’Brien says “each has a benefit over a monthly paid mortgage insurance program.” This is ideal for borrowers who can qualify for a higher monthly housing payment and higher purchase price, yet don’t have 20% for a down payment.
Split Premium MI
The Split Premium program requires an upfront fee to reduce the factor that determines the monthly premium. This upfront payment can be paid either by the borrower or by the seller with closing cost concessions.
Single Premium MI
A Single Premium Financed MI program requires an upfront premium, however this premium is not paid out of pocket. It is financed on top of the base loan amount and eliminates a monthly mortgage insurance payment entirely. This program always reduces the monthly total housing payment over a scenario with traditional mortgage insurance, and reduces the total amount paid for mortgage insurance over the life of the loan.
Example of Liberty Home Mortgage With Less than 20% Down
See the attached comparison scenario for a 400K purchase with a 10% down payment. Mortgage insurance rates improve for credit scores higher than 720 and/or with higher down payment. Rates decline for borrowers with credit scores below 720 and/or with lower down payment. PDF: Allison-OBrien-400K-comparison
I would highly consider looking very closely at this program when trying to qualify for a higher loan amount and/or to reduce the monthly payment to make the total housing payment more comfortable and stay within a specified housing budget. Ask about the Single Premium Financed MI program as it’s the best thing to happen to the mortgage industry in years!
Allison O’Brien
Thanks for the information. The MI amount in your example is much less than I am paying for a similar size loan. Is MI lower for traditional loans, compared to FHA loans? Or are there other factors that affect the amount of the MI?
Doreen, great question! There are a couple of factors that may be affecting your MI premium versus the MI premium in the scenario I presented. MI is determined mainly by credit score and loan to value. If you have a conventional loan, and either your credit score was lower than 720 or loan to value higher than 90% when you purchased or refinanced , your MI premium would be higher than in the example given. Conventional MI rates have decreased a bit recently, while the changes to the FHA program last April significantly increased the MI factor. So, yes, FHA loans do have substantially higher MI premiums than conventional loans at the same loan to value.