Mortgage Insurance For Conventional Loans

MORTGAGE INSURANCE FOR CONVENTIONAL LOANS

The information below pertains only to conventional financing because government loans (like FHA, VA, and USDA) all have their own guidelines for MIP and funding fees. Please visit those pages for more details or visit our page on Mortgage Insurance for an overview of MI, PMI, and MIP.

MI is not required on loans with at least a 20% equity position or when doing Split Financing (i.e. a first and second mortgage). Mortgage Insurance can be tax deductible but that is dependent on the household’s adjusted gross income.  See our page on Mortgage Insurance Tax Deductions for more details.

It’s worth noting that MI Companies could have their own underwriting overlays which could result in additional underwriting requirements; however, in the vast majoirty of cases a loan that is approved by a lender is eligible for Mortgage Insurance. In absolute worst cases there may be very rare incidents where a loan is eligible for bank’s portfolio but the MI guidelines prevent the loan from closing. Again, this very rare but it is worth noting.

 

MI RATES AND COSTS: The amount of MI charged is based off of a variety of factors. Check out our Mortgage Calculator that automatically factors these items in the payment calculations. Below are the criteria that influence the MI rate, ranked from the most influential to the least influential:

  • Loan Period – the MI rate is lower for loans with a 15 year period or less. For loans greater than 15 years (like a 20, 25, or 30 year mortgage) the MI rate is increased.
  • Loan to Value – the MI rate is reduced for every 5% equity increment. For this reason we typically recommend down payments of 5%, 10%, 15%, or 20% (or more). For example: the MI rate will be the same for a 5% down payment as it would be for a 9% down payment.
  • Credit Scores – MI rates are impacted by the borrower’s credit scores. The better the score, the lower the rate.
  • Miscellaneous – there are other factors that impact the MI rate, however these are to a much lower extent than the aforementioned items. Examples of other factors include the occupancy type (i.e. primary residence verses second home), transaction type (i.e. purchase vs. refinance vs. cash out), loan amount (conforming verses jumbo), etc.

 

TYPES OF MORTGAGE INSURANCE

There are primarily three types of MI for conventional loans.  Technically there is a fourth called Split Premium but we’ll save that topic for another day. These are currently listed in order from the most commonly used to the least commonly used.  As always, call us if you have any questions.

Monthly MI

Monthly MI is the most common type of Mortgage Insurance since it required the least amount of funds to close. Monthly MI is included in the borrower’s monthly mortgage payment and can ultimately be cancelled without refinancing. Monthly MI becomes a great option when someone expects to do major improvements to the home and increase its value. That increased value then accelerates the timeline for the MI removal process. See our MI Cancellation page for more details.

Lender-Paid MI

Lender-Paid MI is rarely used because it requires a higher interest rate which impacts the costs over the life of the loan. Unlike monthly MI that can an eventually be removed, the lender-paid MI is permanent and will increase the cost over the life of loan due to the higher interest rate. Lender-paid MI means that the lender can either pay the MI premium directly to the MI Company or self-insure the loan. Niche products on banks’ portfolios (like jumbo loans, doctor’s loans, etc.) often included lender-paid MI.

Single-Paid Premium MI

Single-Paid Premium MI is a great way to avoid having MI as part of the monthly payment. A Single-paid premium is a one-time, lump sum payment of MI that is paid at closing to avoid the monthly MI. This is typically paid by the borrower with funds due at closing, however, this single-paid premium can also be: paid by the seller via Seller Concessions, paid by the lender via a Lender Credit, or rolled into the loan amount so long as the LTV doesn’t exceed 95%.

Single-Paid becomes a great option when there is a 10% equity position because the single-paid typically equates to 2.5 to 3 years worth of monthly MI payments. A 5% equity position can single-paid MI but it equates to about 4 to 4.5 years of monthly MI payments. At that point it’s typically more advantageous to put down an extra 5% and take the lowered monthly MI option. An advantage to the single-paid MI verses monthly MI is that the single-paid is not impacted by future fluctuations (i.e. reductions) in property values since the monthly MI cancellation will be dependent upon the value. The obvious downfall to the single-paid is the additional cost due at closing.

 

The majority of our lending is done in Dallas County, Collin County, and Tarrant County and this website is specifically directed towards home loans originated in Texas.  The Pfeiffer Mortgage Group and HomeBridge Residential Lending are licensed in other states so please call if you have specific questions about a non-Texas loan.  We offer financing for Conventional, Jumbo, FHA, 203k, VA, Texas Vet, USDA, Home Equity, and Texas Cash Out loans.

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