Assume you are doing a Conventional loan over 80% of the value of your house. You are going to need mortgage insurance on your loan. Did you know that you can receive an approval from your loan officer? You can even receive an approval from the underwriter. If the Private Mortgage Insurance Company (PMI) does not feel you meet their guidelines, your loan cannot and will not close. Mortgage insurance is insurance for the mortgage company, not you. You pay mortgage insurance to protect the lender in the event you default on your loan. Conventional lenders require mortgage insurance on any loan that you do not have at least 20% equity in. If you are borrowing more than 80% of the value of your property, you will need to have mortgage insurance.
PMI companies have their own guidelines and requirements that are on top of the lenders guidelines. PMI companies are just like any other insurance. They pay for losses. Over the last 2 years mortgage insurance have become even more restrictive because of the large amount of losses in the mortgage industry. 12 months ago if a loan officer received an approval from a lender, getting mortgage insurance was not an issue. Today loan officer have to start with the PMI companies guidelines to ensure the PMI companies will approve the loan. Then they have to see if the lender will accept the loan.
Conventional lending volumes have gone down dramatically this year. PMI companies have even labeled certain states and counties as declining market areas. These areas are where the PMI companies believe the values of properties are declining state wide or county wide. In these areas the PMI companies are even more restrictive. Some of the limits they enforce are No Cash out loans over 80% loan to value. A minimum of 10% down payments on purchases, and minimum FICO scores to 720. This makes it difficult to lend Conventional loans.
What are the solutions? There are several things that can help you to avoid PMI problems. Take advantage of FHA financing. FHA loans allow for Cash Out refinances up to 95% loan to value. FHA allows for 3% down payments with credit scores above 580. FHA loans have very competitive mortgage insurance premiums that do not come from PMI companies. FHA mortgage insurance is backed by the Federal Government's Housing and Urban Development Department (HUD). Improve your credit score. Work with a loan officer who has all the tools to help you to improve your credit scores. It will help you today and down the road.
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