What is PMI?

Wednesday, January 21st, 2009 | Mortgage Q&A | admin

Question:

fishforfood asks:

We want to buy a house that is 130k. We have been looking at the FHA. I am somewhat confused about the PMI. From what I have gathered, you will pay 1.5% down then .5% anually for 5 years or until you have paid 22% of the price. Then if you sell the house before ten years you will have to pay a recapture fee. I do not believe we will be in this house for ten years. Also, i have read where we will be paying more for insurance than we would with a conventional loan.

With the conventional loan, we have to have atleast 5% down. Which we will be able to get. Then we will have to pay PMI until 20% of the purchase price is reached. I am sure we will be able to qualify for a Conv loan.

Answer:

Niicss answers:

FHA loans are federal assistance mortgage loan programs which are insured by the Federal Housing Administration. These loans are mainly issued by federally qualified lenders. On the other hand, conventional loans are basically any kind of real estate loan which are not backed by the Veterans Administration or protected by the FHA. FHA loans have lower down payments and credit-qualifying guidelines.

gmakerley answers:

that 22% figure hit me in the eyes. that’s not accurate.

one of the keys in high ltv financing these days is your credit score. with conventional loans, unless you have a score of 740 or above, you’ll be charged a fraction of a point, or more, in order to obtain 95% financing. not only that, but fewer mortgage companies are insurance such loans, and those that do charge much higher rates than previously.

with fha loans, there is an upfront mortgage insurance premium based on 1.75% of the loan amount; then there is a .55% monthly MIP incorporated into your loan payment. when you sell a home, or refinance, you would be eligible for a refund of that upfront premium. i can’t tell you the calculation as to the refund, but i know it exists. if the .55 exists for 5 years, that totals a little less than 3% of the overall loan amount. so…adding the 3% to the 1.75%, that comes to less than 5%. who told you 22%?

once you have your credit scores in hand, check into both possibilities and see how they shake out. you’ll then be able to compare and choose the better product for you.

Source: MortgageFit.com

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