• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

Sonoma County Mortgages

Contact Us About Mortgage Financing

All financing provided by New American Funding

(707) 217-4000 | Prequalify Now

Search Sonoma County Mortgages

  • Home
  • Purchase
    • How Much Down Payment To Buy A Home?
    • How Much Income You Need To Buy A Home
    • How Much Should I Save For Buying A Home?
      • How Rates Affect Payment
    • No PMI Mortgages
    • FHA Loans
    • Sonoma County Disaster Loans
    • Jumbo Loans
  • Refinance
    • Mortgage Rates
    • Does It Make Sense To Refinance?
      • Get Your Refi Paperwork In Order
    • How To Pay Off Your Loan Faster
    • How To Remove PMI
    • How Lenders Price & Quote Loans
  • Loan Programs
  • Payment Calculator
    • Mortgage Affordability Calculator
  • Blog
  • Videos
  • About SCM
  • About Scott Sheldon

Primary Sidebar

Sonoma County Mortgages is a part of New American Funding

New American Funding - NMLS #6606

Get Your Latest Rate Quote Now!

Mortgage Insurance: Consumer Tips On PMI & Advoidance

February 3, 2013 by Scott Sheldon

Share on Facebook Share on Twitter Share on Pinterest Share on LinkedIn Share on Email
4 Things Banks Won’t Tell You About Mortgages

Mortgage Insurance is like the plague to a monthly mortgage payment. It makes the cost of homeownership rise over time, only benefits one party… the lender. Mortgage insurance also known as private mortgage insurance (PMI)  is an intergal component of many popular loan programs today; FHA Mortgages, USDA Mortgages and yes even standard Conventional Mortgages. Mortgage insurance is paid by the consumer for the benefit of the lender to insure that loan being made against future payment default on the side of the consumer. Mortgage insurance loans are more profitable to the financial  financial markets because of the additional premiums generated by the additional payment to the servicer (servicer being the mortgage company collecting the monthly payment from the consumer).

How Mortgage Insurance Becomes Attached To A House Payment

“Less than 20% equity”

Less than 20% equity on a refinance or less than 20% down on a purchase transaction causes mortgage insurance to be applied to the total monthly mortgage payment. Additionally, over 80% loan financing to value will also require property taxes and hazard insurance be built into the monthly mortgage payment, mortgage insurance is then added to this figure.

*PMI Formula for determining payment: typically based on 75 basis points of the loan amount. On a $300,000 loan that translates to $187.50 per month respectively. For every dollar of debt, double that in income is required to offset it. Example: takes $375 per month in income, just to offset the $187.50 per month in PMI. 

How To Reduce Borrower Paid Monthly PMI

Few solutions:

  • Achieved with a lower loan-to-value supported by an appraisal or more funds needed to bring the borrowed loan amount down
  • Conventional loans typically contain lower monthly mortgage insurance than government loans
  • Harp 2 Refinances no matter the loan to value, will not require monthly mortgage insurance so long as the loan being paid off does not contain monthly mortgage insurance

Consumers will be offered lower monthly mortgage insurance if..

Credit scores are 760 or better and the loan to value is no larger than 85% and if refinancing, no cash is being taken out of the property.

How Long Mortgage Insurance Is Required For

Depends on mortgage loan program, conventional mortgage or a government mortgage?

Conventional Mortgages will require monthly mortgage insurance until 78% loan to value or rather 22% equity. This of course becomes the wildcard as property values continue to climb. When the consumer feels they have 20% equity in their home, they can contact their mortgage servicer (mortgage company collecting the payment)  and inquire about getting their mortgage insurance removed. Lender does not have to grant the request. Lender will require an appraisal or an AVM ( automated valuation model)  to support the  20% equity. The consumer can always choose to refinance anyway.

*Lender must remove mortgage insurance at 22% equity-while this is true, it is primarily up to the consumer to be  proactive in ridding themselves of mortgage insurance payment.

By making principal balance prepayments, reaching 20% equity will come faster thereby allowing the mortgage insurance to be potentially removed.

Government Mortgages such as FHA Loans require monthly mortgage insurance no matter the loan to value for a minimum of five years, and then at 20% equity, consumer can request the monthly mortgage insurance be removed and the stipulations at 22% equity take effect.

Occupancy Types Eligible For PMI

  • Primary residences-maximum loan to value 97% financing, 95%loan to value produces better terms
  • Second Homes- maximum loan to value of 90%
  • Vacation Homes- maximum loan to value of 90%
  • Investment Properties-no PMI  financing available for non-owner occupied property types

Does Mortgage With PMI Make Financial Sense?

Generally speaking, lowest possible payment is optimal.

Exceptions: maybe due to previous credit obstacle, an FHA Loan with monthly mortgage insurance allows a buyer to purchase with less than perfect qualifying standards. Maybe using less money down and having an extra safety net is important. In either scenario, financing containing monthly mortgage insurance would be suitable.

An available refinance opportunity making sense for many homeowners in the marketplace with current FHA loans who purchased in  2010 and 2011 is refinancing into conventional loans with lower monthly mortgage insurance. Mortgage insurance on conventional loans is lower and the rates today are substantially lower than they were in the past 24 months.

If you are thinking about buying or refinancing house or want to learn more about how you can reduce your monthly mortgage insurance or even get rid of your monthly PMI, we can help. Contact us today at Scott.Sheldon@nafinc.com.

Related Mortgage Advice from Scott Sheldon

  • Single Pay Mortgage Insurance: A Secret Alternative To Avoiding Monthly PMI

    For consumers purchasing or refinancing a home with less than 20% equity, little-known fee inflates…

  • How Do I Calculate Mortgage Insurance On A Conventional Loan?

    Calculating monthly mortgage insurance on a conventional loan is best handled directly with the mortgage…

  • Mortgage Payment Calculator

    With current mortgage rates still under 5%, do the math, an accurate mortgage payment calculator…

  • Two Pricey Home Loans Consumers Should Watch For

    Getting a mortgage anytime soon? Two types of home loans are inherently pricier than their…

Filed Under: Loan Programs, Loan Qualifying, Mortgage Tips & Advice Tagged With: buying a house, how mortgage insurance works, mortgage insurance, qualifying for a mortgage, sonoma county refinancing

Get Sonoma County Mortgages News and Updates in Your Inbox

Footer

SCM on Facebook

SonomaCountyMortgages.com

Connect on Facebook

SCM On Instagram

Follow Sonoma County Mortgages on Instagram

Follow on Instagram

SCM on Zillow

Zillow Reviews for Scott Sheldon, New American Funding

See Reviews on Zillow

Location & Contact

Sonoma County Mortgages and New American Funding are an Equal Opportunity Housing Lender

Scott Sheldon, Senior Loan Officer
NMLS ID# 287389
2455 Bennett Valley Road C107
Santa Rosa, CA 95405
1-707-217-4000
View SCM Map | Email Us!

Map of Sonoma County Mortgages New American Financing Office

View Map on Google

Copyright 2010–2023 SonomaCountyMortgages.com · About Us · Sonoma County Loans · Privacy Policy · Terms Of Use · Legal · Site Map

NMLS Consumer Access © New American Funding. All rights Reserved. NMLS ID#6606.
Corporate Office 14511 Myford Road, Suite 100, Tustin, CA 92780. We at New American Funding take great pride in our customer service and make it our number one priority. We encourage you to contact us for complaint resolution or any post-closing questions you may have regarding the servicing of your loan. We strive to have your experience with New American Funding a stellar one. In the rare case that our service did not meet your expectations, please call our customer care hotline at 1-800- 450-2010, ext. 7100 or you may contact us by email customerservice@nafinc.com. Please leave a detailed message and we will follow up with you no later than the end of the next business day. If you are using a screen reader or other auxiliary aid and are having problems using this website, please call 800-450-2010 Ext. 7100 for assistance.

State Licensing (Opens in New Window) | Privacy (Opens in New Window)
Terms of Use (Opens in New Window) | Electronic Consent Agreement (Opens in New Window)
Opens in new window Opens an external site Opens an external site in a new window