Loans without mortgage insurance!
Many buyers who put down less than 20% ask about how they can finance a home purchase without mortgage insurance.
There are two ways to avoid paying monthly mortgage insurance, and that is through either we the lender paying it for you, or through you prepaying it.
This is possible under these loan amounts and these down payments:
Loans up to $424,100, 3% down or more
Loans up to $636,150, 5% down or more
Loans up to $850,000, 10% down or more
Loans up to $3,000,000, 15% down or more
The higher the credit score and the greater the down payment, the less the mortgage insurance costs. Let’s discuss the 2 programs to avoid paying mortgage insurance monthly:
Prepaid/Upfront MI: You can prepay a fee upfront to avoid mortgage insurance for the life of the loan. For example, on a $500,000 loan with 10% down, with a 760+ credit score, the prepayment of mortgage insurance would cost today about 1.4%. This is in lieu of paying mortgage insurance of .57%/year. If you own the property for over 3 years, prepaying MI makes sense. While the cost of the upfront mortgage insurance varies with down payment and credit score and loan amount, the 3-4 year break even time period usually holds true.
Lender Paid Mortgage Insurance: Instead of paying mortgage insurance monthly yourself, we can instead roll the mortgage insurance into the interest rate. For a sample 760+ credit score with 5% down, this usually is a .375% increase in the rate. This is less than paying .54% in mortgage insurance.
But lender paid mortgage insurance is retained for the life of the loan, whereas monthly mortgage insurance is only on the loan for about 4-10 years. So you’d have to carefully consider how long you plan to own the property, to decide whether lender paid mortgage insurance “pays off” or not.
What is best for you?
That is where I come in – to help you decide. Based on your down payment, loan amount, credit score, assets, and time you plan to own the property, we can do the math. And you can make the decision.
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