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Homeowners Have More Options
As home values rise in a real estate market that has stripped so many California homeowners of their equity, there is finally a light at the end of the tunnel for those who have up to this point have very few options, if any, for taking advantage of historically low mortgage interest rates.
With as little as 3% equity, homeowners have many options available to them for refinancing using a conventional home mortgage loan with private mortgage insurance.
Home Buyers Have More Options
For those who do not have FHA Streamline, VA IRRL or HARP eligible home loans, and are therefore unable to take advantage of special refinance programs, seeing as little as 3% equity may now give you a light at the end of this tunnel and a real opportunity to refinance.
The problem with using a FHA insured mortgage to refinance your home is the long term cost of MIP now that it’s become permanent as of June 3rd, 2013.
3 PMI Options That Will Save You Money
PMI offers many more options than what we are discussing here. In general, PMI rates tend to be slightly to significantly lower than Government insured financing.
Lender Paid Mortgage Insurance
LPMI is a very good option for borrowers that simply cannot fathom the thought of paying monthly mortgage insurance.
While some lenders will say that their loan has no mortgage insurance, the truth is, it’s a lender paid policy and the interest rates are slightly higher than if you paid for mortgage insurance monthly.
LPMI converts mortgage insurance into tax deductible mortgage interest
With lender paid mortgage insurance, you are basically factoring in the cost of the mortgage insurance into the interest rate.
Even though your interest rate is a little higher, by converting PMI into interest, you gain the ability to take a tax deduction on the cost of getting financing for your home.
Income Based Discounts
Private mortgage insurance allows for discounted rates when the lender will allow. With FHA mortgage insurance, this is not an option under any circumstances.
Conventional financing allows borrowers that meet low-to-moderate income specifications to qualify for discounted private mortgage insurance premiums.
In the State of California, the income limit for eligibility of this program is 140% of the area median income. These limits are set by County, so check with your lender for the maximum income limit in your area.
Broadview Mortgage offers this program in the State of California, it is called the Broadview Community Access loan.
Equity Based Discounts
Another amazing feature of PMI that crushes FHA mortgage insurance as an option is the ability to reduce mortgage insurance based on the loan to value.
FHA pretty much offers a “one-size-fits-all” solution and does not lower your cost as the risk is lowered to the lender. The risk of losing money in the event of a default is reduced when you have more equity in your home.
With PMI, the insurance rates go down as your equity goes up. Even though PMI is available with only 3% equity (97% LTV), there is a significant savings if you can increase that equity by as little as 2% more, or 5% total equity (95% LTV).
If you have 10% or 15% equity, your savings are even greater with PMI.
Understand Your Options
While it’s true that PMI will indeed save you money over FHA mortgage insurance, you still have to consider qualifying for the mortgage loan.
In some cases conventional mortgages can be more expensive, have higher interest rates and higher closing costs, for borrowers with lower credit scores.
Even though conventional financing allows for as low as a 620 credit score, the cost of using conventional financing in this situation can get costly.
Work with a lender that is up to date and educated about all of the options available to you. When it comes to choosing the right mortgage, it all comes down to the numbers.
Once you are educated, and empowered to make an informed decision, it’s then just a process of identifying your long and short term goals for living in the home, comparing all of your options, and choosing the solution that best fits your needs.
Is PMI My Best Option?
Have more questions about qualifying, benefits or features of Private Mortgage Insurance? Feel free to leave a question below, email or call and we will be more than happy to answer any questions you may have.