Loans with No PMI
Mortgage insurance protects the lender from a loss due to a default (foreclosure). Mortgage insurance provides a borrower the opportunity to purchase a home with a small down payment.
Your mortgage insurance rate will be calculated based on three factors:
- The type of loan you are getting (FHA or Conventional)
- The amount of your down payment
- Your credit score
Many home buyers believe they should avoid paying mortgage insurance; that it has no benefit. Some popular authors and speakers promote saving for a down payment of 20% or more before buying a home. Neither of these statements have any basis in fact, and if taken at face value, could cost a home buyer tens of thousands of dollars over time.
Every individual's financial situation is different and there are no rules that apply to everyone. The key to saving money on a home is in having good advisement, and buying the right home at the proper time.
Here are a few things to consider regarding mortgage insurance:
- If you qualify for both types of loans, and your credit score is higher than 700, be sure you are making the right choice between FHA and Conventional. In most cases, the mortgage insurance on an FHA loan is permanent - you must refinance the loan to remove it. On a conventional loan, the mortgage insurance will automatically drop off once your loan reaches 78% of the price you paid for the home. Also, FHA has a large up-front mortgage insurance premium that is rolled back into the loan (and you pay interest on it!).
- If your credit scores are very high (above 750) - you will find the mortgage insurance on a conventional loan is very inexpensive (~.3%). Waiting until you have 20% down could cause you to have in interest rate much higher than this margin if interest rates are tending to increase.
- Piggy-Back loans allow you to avoid mortgage insurance by breaking the loan into two parts. The first and second mortgages are managed separately, and you can prepay the second mortgage quickly to reduce your housing expense. It's as if you put 20% down in the first place.
Please schedule a consultation with an certified Home Loan Advisor™ to learn about your best options.