INTEREST RATES Shopping? WHAT ABOUT PMI?
St Paul Minneapolis, MN: Most consumers don't ask all the right questions when buying and refinancing a home and almost always simply focus only on the interest rate or closing costs. Those are both logical questions to ask, but they don't always give you the full picture. We want you to always think TOTAL COST as it pertains to your individual situation. A great rate on the wrong deal can end up being a very expensive mistake.
PRIVATE MORTGAGE INSURANCE is a big cost on a home loan if you are putting less than 20% down or have less than 20% equity. The cost of this mandatory insurance, depending on the home loan program can be the exact same with all lenders, or vary greatly. Shopping your loan only on rate and cost, and not factoring mortgage insurance can cost you thousands of dollars.
Standard Fannie Mae / Freddie Mac conventional loans are something completely different, and private mortgage insurance can vary greatly, so this will be our focus.
First, understand that a large percentage of bank Loan Officers are simple application takers, and either don't know how, don't want to take the time, or don't care about helping you get the best deal. They just take your application. If you don't ask, they are not going to tell you these options, nor are they going to take the time to "run the numbers."
THE STANDARD PMI OPTION is called "monthly", and the lender collects this insurance fee each month. The cost of the insurance is based primarily on your loan-to-value and is on a sliding scale. The smaller the down payment, the more expensive the insurance. As many of you know, once you get to 20% down or equity, most mortgage insurance goes away.
ANOTHER PMI OPTION is called "single premium", and the lender collects a large one-time up front mortgage insurance payment. Under this option, there is NO monthly mortgage insurance. If customers have the up front money or equity room to cover the cost, this is almost always the best private mortgage insurance option.
LENDER DIFFERENCES on the cost of PMI vary because of many factors, but mostly because of what private mortgage insurance company the lender is using to obtain the insurance. As the homeowner, you do NOT get to pick the company, and it should be understood that the lender does NOT make any money on the insurance either.
Today, I ran across this scenario, and it prompted me to write this article. The customer went to a big bank with horses and a stagecoach. Their loan amount was $200,000, and the monthly cost of the PMI was based on a factor of .92%, or $153.33 PER MONTH.
With us, and providing the customer with an identical interest rate and identical closing costs, our private mortgage insurance was significantly less. At a factor of just .52%, or $86.67 per month, with a saving of $66 per month over the big bank!
Needless to say, the customer quickly saw the true cost of financing was much more than just looking at interest rates. ARe you getting the big picture, or simply shopping rates?
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Mortgages Unlimited is a Full Eagle FHA Lender. We lend in MN, WI only
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