Posted by franny on 4/6/12 9:43pm
Msg #417211

mortgage insurance

I had a closing where the BO had to agree to mortgage insurance in order to be approved for the refi b/c the house went down in value by $200k. The insurance costs $500/month for five years. Does anyone know if this is a realistic requirment

Reply by Buddy Young on 4/6/12 9:51pm
Msg #417212

Yes, it's expensive. Most lenders require it if the loan is above a certain percentage of the home value. I believe it is 80%

Reply by JPH13/MO on 4/7/12 12:32pm
Msg #417229

The purpose of mortgage insurance is to cover the lender in case the property goes into foreclosure. When this happens the property owners could have trashed the place to the point that it is not worth more than 80% of what it was worth at the time they obtained the loan, in which case the difference is paid by the company providing the mortgage insurance up to the original appraised value. It is now being used to help cover the decrease in value that has happened throughout most of the US, but that was not the original intent.

Yes, any conventional loan under 80% Loan To Value (LTV) should require mortgage insurance. However, many people can get now get (due to economy - I am someone who was able to do this) refinanced thru the same lender without mortgage insurance as long as the home appraises for at least the loan amount and their older loan was less than 80% LTV, and HARP loans don't even require it to appraise (if I understand them correctly). FHA has Mortgage Insurance Premium (MIP) built in so that even if you get an FHA loan that is less than 80% of the appraised home value you still have to pay MIP. VA loans are guaranteed by the government so even with zero down no mortgage insurance is required.

What you mentioned is high because it is only for a small amount of years. Normally it is spread out for many years, and ends when the borrower has paid down enough of the loan so that the loan is less than 80% of the original appraised home value (what it was worth when the first got the loan). Borrowers who pay more than the required payment each month can petition to get the mortgage insurance removed as soon as they have paid down enough of the loan to get to below the 80% mark.

It used to be that you could petition (to lender) to get it removed once you could prove, by getting a professional appraisal done, that your home is now worth enough that the loan is now less than 80% of the home's current value, but those days are gone because now they know the value could drop at any time instead of continually rise.

I know all of this because I was a licensed appraiser and also a broker/manager who had to teach new real estate agents these things, so I found out by contacting lenders to get the facts.

Reply by ReneeK_MI on 4/8/12 6:17am
Msg #417274

Great info, but nit-picking a couple details

MIP ratios vary according to loan terms, per FHA:

FHA's monthly mortgage insurance payments will be automatically terminated when these conditions occur:

1. For mortgages with terms 15 years and less and with Loan to Value ratios 90 percent and greater, annual premiums will be canceled when the Loan to Value ratio reaches 78 percent regardless of the amount of time the mortgagor has paid the premiums.

2. For mortgages with terms more than 15 years, the annual mortgage insurance premiums will be canceled when the Loan to Value ratio reaches 78 percent, provided the mortgagor has paid the annual premium for at least 5 years.

3. Mortgages with terms 15 years and less and with loan to value ratios of 89.99 percent and less will not be charged annual mortgage insurance premiums.

Source: http://www.fha.com/fha_requirements_mortgage_insurance.cfm
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For PMI, from FTC:

For home mortgages signed on or after July 29, 1999, your PMI must - with certain exceptions - be terminated automatically when you reach 22 percent equity in your home based on the original property value, if your mortgage payments are current. Your PMI also can be canceled, when you request - with certain exceptions - when you reach 20 percent equity in your home based on the original property value, if your mortgage payments are current.

Source: http://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt072.shtm

Reply by Ilene C. Seidel on 4/7/12 2:05pm
Msg #417235

Wonder why they didn't qualify for a HARP loan?