Mortgage insurance (also referred to as MI or PMI) can have a big impact on the cost of your new mortgage (and how much home you can afford). If you’re applying for a home loan and want your mortgage insurance to be lower, here are a few strategies:
- Shop the companies who offer PMI if you’re doing a conventional loan
- Many lenders do not tell clients they can shop PMI companies. You can see which company, based on your scenario, offers the type of mortgage insurance you’re looking for.
- Info on shopping for PMI http://www.keaneloans.com/2012/10/19/shopping-for-your-private-mortgage-insurance-pmi/
- Types of PMI http://www.keaneloans.com/2012/03/20/pmi-no-longer-tax-deductible-choose-your-financing-wisely/
- Ask about the “My Community” or “Home Possible” program
- If you’re doing a conventional loan, you can also check to see if you’re eligible for Fannie Mae’s “My Community” loan program. This income-limited program has a few restrictions but if you qualify, the mortgage insurance costs are less http://www.keaneloans.com/2013/11/04/fannie-maes-my-community-mortgage-simple-explanation-of-a-great-product-part-i/
- Choose a shorter term loan
- PMI companies give reduced rates on mortgage insurance if you do a shorter term loan. Especially when you choose a term of 20-years or less.
- If you’re doing a FHA loan, check to see if your local finance agency offers a 3% down conventional loan
- One of the main reasons people choose FHA loans is due to the low 3.5% down payment. Conventional loans typically require 5% down, but conventional loans funded through a local housing finance agency can offer a 3% down payment. The PMI coverage is lower, like the My Community program but you’re allowed to put less than 5% down. You may also be able to supplement the loan with a Down Payment Assistance Program.
The USDA has updated their new eligibility map and has set October 1st, 2014 as the new implementation date. Please stay tuned for an update to my previous post about eligible USDA areas. In the meantime, please visit the following link to see the current map.
NEW USDA MAP
Instructions: Choose “Single Family Housing” from the navigation area on the left. The map requires you enter an address. If you type in the city or county you’re interested in, the map will zoom in to your desired area with a note that states, “We are unable to locate an exact address”. Close the box with that note and you’ll see a birds-eye view of your desired area and the eligibility lines. You can also create a printable PDF of the map.
This program was designed by Fannie Mae to provide low rates, minimal risk-based price adjustments, and reduced mortgage insurance costs to home buyers who meet a few requirements. In this post, we’ll discuss the benefits, how to qualify and how to determine your eligibility.
There are three major benefits to this program.
LOW RATES AND RISK-BASED-PRICE-ADJUSTMENTS
First, this program has no loan-level-price adjustments (also known as LLPAs). LLPAs are all of the reasons you may have to pay more for your loan due to risk to the lender. These LLPAs can include:
- FICO score – Whether you have a 620 or 820 FICO score, everyone who is approved gets the same interest rate pricing
- Down payment – On a regular conventional loan, Fannie Mae will adjust your pricing based on the size of your down payment. Larger down payments will result in better pricing. On a My Community Mortgage you get the same rate regardless of your down payment.
- Property type – Fannie Mae will increase the cost of the loan if the property type is considered a higher risk. This is common for condominiums, duplexes, triplexes, or fourplexes. However, these adjustments do not apply on this product, making this product a go-to product if you’re buying one of these property types. This is very common for homebuyers who are buying a condominium and not putting 25% down, which normally results in an extra cost of .75% in fee.
- Subordinate Financing or Second Mortgages – Fannie Mae charges more on loans if there is a second loan being used, which can reduce a buyer’s minimum down payment. This product does not have any additional charges if there’s a second mortgage.
AFFORDABLE PRIVATE MORTGAGE INSURANCE
Second, these loans have reduced mortgage insurance costs. When a lender orders mortgage insurance for a conventional loan (also known as private mortgage insurance or PMI), the cost is determined by many factors. One of the factors is the “coverage” requirements. On My Community Mortgages, the coverage requirement by the lender is substantially less, resulting in cheaper mortgage insurance costs. Below is a table comparing the PMI coverage for a regular conventional loan versus a My Community Mortgage.
PMI Coverage for Fannie Mae loans (includes 25-year, 30-year and 40-year loan terms)
||Less than 5% down
|PMI Coverage Amount for a regular Conventional Loan
||12% PMI Coverage
||25% PMI Coverage
||30% PMI Coverage
||35% PMI Coverage
|PMI Coverage Amount for a My Community Mortgage
||6% PMI Coverage
||12% PMI Coverage
||16% PMI Coverage
||18% PMI Coverage
To see how this lower PMI coverage can reduce your PMI, you can read more about pricing the PMI here:
REDUCED DOWN PAYMENTS
Third, this program has reduced down payment requirements. This program allows DPA’s (Down Payment Assistance) to assist in a down payment that can provide as little as zero down on a purchase. Without a DPA, this program allows 5% down like a regular conventional loan. However, it does allow as little as 5% down on a 2-4 unit property, which is less than a regular conventional loan. When there is a DPA, the mortgage and DPA can reach as high as 105% of the home value to include closing costs if the DPA is allowed to cover settlement charges in addition to the down payment.
For those who are unfamiliar with DPA’s, they are small community loans recorded in conjunction with a first mortgage. In this case, it would be a small DPA loan funded with a My Community Mortgage.
Fannie Mae will be updating their underwriting engine (Desktop Underwriter, also known as DU) on November 16th. The standard waiting period and re-establishment of credit criteria following a bankruptcy, foreclosure, deed-in-lieu of foreclosure, or preforeclosure sale is being removed for DU Refi Plus loan casefiles. DU will issue a message on loan casefiles for borrowers with a previous bankruptcy, foreclosure, deed-in-lieu of foreclosure, or preforeclosure sale advising that DU did identify the event and that the loan casefile would be eligible for delivery to Fannie Mae, regardless of when the event occurred.
DU will also not require investigation of judgments, bankruptcies, foreclosures, or lawsuits declared by the borrower in the Declarations section of the loan application on DU Refi Plus casefiles.
This will help many people qualify for a DU Refi Plus HARP refinance if they had one of these events on their credit. Save the date and apply after this date if this is something that has kept you from qualifying in the past.
This is a quick tip that should help investors or prospective investors.
Many lenders, local banks, and credit unions are happy to offer homeowners a home equity line of credit (often referred to as HELOC’s) on a primary residence, but very few lenders offer them on rental properties. The lenders I’ve listed below (which I’m not affiliated with) all offer this product. If this is something you need for upkeep of properties or for other purposes, look into these banks. If it helps you to have a personal referral to one of these banks, please let me know and I can help you find a trusted professional.
Columbia Bank’s website states this product is for owner-occupied Single-Family residences but I’ve confirmed that Columbia Bank will do a HELOC on a rental. They will only do a fixed-rate second mortgage if the property is a multi-family, in the event you have a duplex/triplex/fourplex. The same product appears to be available for commercial multi-family homes. Columbia Bank is a local bank that serves the Washington and Oregon state communities.
Citizens Savings Bank
Citizen’s Savings bank states they offer they offer HELOC’s on rental and vacation homes per their website. Their site indicates that they serve the state of Pennsylvania only.
Union Bank is the largest of the group. Union Bank offers HELOC’s through broker channels and directly from the bank. However, brokers do not have access to HELOC’s for rentals. Union Bank’s website may indicate otherwise, but my experience is that mortgage brokers cannot provide this product and you will have to contact a Union Bank branch directly. Union Bank is based in California and has locations in California, Illinois, New York, Oregon, Texas and Washington State.
UPDATE 10/31/2014 (HAPPY HALLOWEEN!)
Boeing Employee’s Credit Union (BECU)
I confirmed with an investor that BECU offers home equity lines on an investment property up to 80% of the value! I don’t know if they’re still offering this to new applications but if they lend in your state, I would explore this option.
If you’re in a state not served by one of these three banks and need to find one in your state, you will have more luck by finding a local bank that specializes in equity loans as the large national banks do not offer this product for rental properties from my experience. Good luck investors!