In this episode of Loan Officer Training, we explore the essentials of Mortgage Insurance (MI) and its critical role in the lending process. From understanding the different types of MI—private, FHA, VA, and USDA—to learning how to calculate premiums and explain their impact on loan affordability, we’ll cover it all.
Gain insights into how MI protects lenders, helps borrowers with lower down payments, and affects loan structures. Whether you're looking to refresh your knowledge or master the intricacies of mortgage insurance, this episode is your guide to confidently navigating MI conversations with clients and closing more deals. Don’t miss it!
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About The Mortgage Calculator:
The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as over 5,000 Non-QM mortgage loan programs using alternative income documentation!
Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!
Our team of over 350 licensed Mortgage Loan Originators can assist our customers with Conventional, FHA, VA and USDA mortgages as well as access thousands of mortgage programs using Alternative Income Documentation such as Bank Statement Mortgages, P&L Mortgages, Asset Based Mortgage Programs, No Ratio CDFI Loan Programs, DSCR Investor Mortgages, Commercial Mortgages, Fix and Flip Mortgages and thousands more!
Our Mortgage Loan Originators are trained to be loan consultants to guide borrowers throughout the entire loan process.
Loan Officers for Unlimited Free Non-QM Leads & Trainings Join The Mortgage Calculator at https://themortgagecalculator.com/join
The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as thousands of Non-QM mortgage loan program variations using alternative income documentation!
Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!
Our team of licensed Mortgage Loan Originators can assist our customers with Conventional, FHA, VA and USDA mortgages as well
Episode Transcript
So let's get right into it here.
So what exactly is privatemortgage insurance?
Private mortgage insurance is afinancial guarantee that reduces
loss to the lender or investor.
So, uh, In the event borrowersdo not repay their mortgage,
(00:22):
mortgage insurance is requiredat LTVs above 80%.
So 80.
01 percent or above LTV, youneed mortgage insurance.
Like I was already mentioning,the benefits is of MI is it
allows high LTV loans, right?
(00:43):
It's not a guarantee, right?
The loans go up to 80 percent orless.
There's additional guarantees.
And in this case, mortgageinsurance.
So another benefit.
Uh, to MI is the ability tocancel when no longer required,
(01:05):
right?
As compared to mortgageinsurance on an FHA loan, PMI,
you can cancel it, which we'llget into in a bit.
Um, MI, PMI also gives increasedbuying power for the buyers
because like I mentioned, howalso those buyers going to buy a
(01:26):
home if they don't have the 20percent down.
The only way that they can do itis because of mortgage
insurance, the extra securityand assurances that mortgage
insurance offers, um, to thedeal, because it reduces the
lender's exposure to losses.
(01:49):
So for example, when you'regetting your quotes, right, you
may see that for, uh, uh, 97%,uh, LTV quote, uh, is going to
state you need 35%.
Mortgage insurance coverage,right?
For 35 percent of the loss.
Um, 95 percent you'll see thatit says 30%.
(02:13):
And, um, at 90 percent LTV, forexample, you'll see that it says
25 percent coverage.
So that's how the amount of theMI would be lower according to
the loan amount.
But please also know thatmortgage insurance, or should I
say private mortgage insuranceis a loan to value as well as
(02:36):
credit score based.
You already saw that the lowerthe LTV, the percentage of
coverage has to go down.
Um, the lower the credit score,the higher the amount.
I mean, I've had scenarios wherewith a six 40 or six 50 credit
(02:56):
score on an agency loan.
Borrowers paying five, 600 amonth of MI.
That would definitely be ascenario where you would
probably would be looking at anFHA loan since the mortgage
insurance on the FHA loan isbased on the loan amount times
(03:16):
the factor, right, 0.
55%.
divided by 12 as opposed tomortgage insurance, which is
based on a factor, but it's alsobased that factor is going to be
based on the credit score of theborrower, uh, as well as the LT.
(03:37):
Now, um, different ways to ordermortgage insurance.
I guess this is more of aprocedural item for the loan
officers, but please be aware,um, in some cases, the investor
underwriter orders the MI whenthey handle everything.
And in other cases, the MLO hasto order the MI, uh,
(04:00):
individually from whatever MIcarrier that you are choosing.
Please note that when the loanis submitted to MI for review,
it's like there's an, there's anMI underwriter.
They're going to review the filejust like the underwriter That
the investor reviews the fileand they're gonna underwrite it.
And in some cases we do havesituations where the, um,
(04:27):
underwrite by the MI underwriterconflicts with the underwrite of
the, um, investor underwriter,you know, like.
Which meaning they could haveactually more conditions, give
you additional conditions thatyou didn't expect, and now you
got to go back and provideadditional documentation.
(04:48):
So please do note that MI doesneed to be approved and there is
an underwriting process and theyare going.
(07:49):
Hold up everybody.
Let's get this going.
(09:49):
All right.
Uh, thank you so much folks.
Uh, we had a little technicaldifficulty there.
Um, but we're back.
Uh, had a little loss of powerhere.
Uh, so hopefully didn't loseeverybody.
Let's go back into thepresentation here a minute.
All right.
(10:10):
So we were going over mortgageinsurance and, uh, we were going
over, uh, basically.
The benefits of mortgageinsurance.
So we already went over thebenefits.
Reduces lenders exposure.
And then we were talking abouthow you order mortgage
(10:30):
insurance.
Actually, that's where we wereat when I was cut off with my
power surge here.
Um, so you're either going toorder the mortgage insurance
directly from the mortgageinsurance company or the
underwriter, uh, will order itfor you.
So you really have to make thatdetermination on where you're
(10:52):
submitting the loan and makesure who's responsible.
For the mortgage insurance.
Now let's get into the types ofmortgage insurance.
And again, we're talking aboutprivate mortgage insurance here.
Um, the most common option ofmortgage insurance is borrower
(11:12):
paid mortgage insurance, wherethere is a monthly premium,
right?
It's paid monthly.
That's it's set on a, on a, on afactor annual amount.
Divided by 12.
Uh, now the benefit of havingthe monthly premium is that it
may be cancelled in its entiretywhen it's not needed.
(11:34):
You won't be, you know, billed,you won't have to make the
payment anymore.
And there is no upfront premium,right?
It's basically monthly payment.
Uh, the second option is thesingle premium, uh, Morgan
Insurance.
It's a lump sum payment.
(11:55):
paid one time.
Now that can either be paid bythe buyer, the borrower, by the
seller, by the builder.
Um, now the benefit of thesingle premium is that there is
not a monthly payment.
So there's a one time, uh, cost.
(12:15):
Which is the expense.
Now, again, it can be paid, um,as a closing cost, uh, or it can
be financed into the loanamount.
Um, so, and, and again, it maybe, um, a portion of it may be
canceled.
(12:35):
But the big benefit of thesingle premium is that there is
not a monthly payment.
Charged to the bar.
So there it doesn't appear.
It's not part of the P.
I.
T.
I.
Right.
So it doesn't appear in the D.
T.
I.
So if, for example, you do havethat 12 or 13, 000 annual
premium or whatever it could be,you know, six or 700 a month,
(13:01):
right?
But maybe if they get it as asingle premium policy.
Okay.
It's going to be a little bithigher amount.
It could be 000, but it's a onetime fee, right?
So that four or five or 600 amonth that is going against the,
um, the borrower's income willno longer be there.
(13:23):
So it will not affect the DTI.
So if for example, that four orfive, 600 a month in mortgage
insurance was taking you overthe top, As to what the, you
know, as to the maximumallowable DTI now, um, if they
can come up with the money, thenthey wouldn't have that problem.
And there's many ways to getcreative there.
(13:44):
If you have a set ofcontribution to the closing or
the bar is simply has the moneybecause.
The 10, 000 or 12, 000 inadditional down payment, for
example, to try to bring downthe payment isn't going to
affect the payment as muchbecause that could be 5, 6, 7 a
month per thousand isn't goingto affect the payment as much as
(14:08):
if you pay that mortgageinsurance up front.
One time payment and then youeliminate that high mortgage
insurance payment.
And again, specifically, we'retalking about here for scenarios
of borrowers that have lowercredit scores where the mortgage
insurance is really high.
We're not really talking aboutan M.
I.
payment of 40, 50 a month.
(14:29):
Right.
So that's this, but this is asolution and it has worked out
in many loans where the, the,uh, single premium, uh, has been
paid.
And by the way, good news is weeven have a lender paid.
Am I single premium, right?
(14:50):
Uh, where the, the, um, thepremium is paid by the lender or
third party.
However, the cost for the, uh,lender paid M I is, is not free.
That that cost is going to bepaid for by higher interest
rates.
(15:10):
And it could be some additionalfees that they add, but
definitely you're going to havea higher interest rate when you
have lender paid MI.
Now the last topic that I wantedto cover here was MI
cancellation, right?
The cancellation of PMI, becausethere seems to be a lot of
(15:32):
mystery In the market as to howyou can cancel the MI, this is a
very important takeaway fromthis training.
Um, the first, uh, method of,for MI cancellation is automatic
termination of the MI at 78%.
(15:53):
of the original value of thehome, not the current value from
an appraisal, but 78 percent ofthe original value.
We have automatic termination.
The second way it can becanceled is that the borrower
requested it at 80 percent ofthe original value, right?
Notice we're talking aboutoriginal value.
(16:15):
So whenever we're talking aboutoriginal value, Um, you know,
there's less restrictions,right?
Because the original value whenyou bought it and for you to get
the 80%, you either pay down alot on the loan, right up front
or, um, a lot of time has passedand, um, now you're at 80
(16:36):
percent LTV based on theoriginal value.
However, many people don't wantto wait until they get the 78%.
For an automatic termination or80 percent of the original
value, they want to try tocancel that MI as soon as
possible.
So, in order to use the currentvalue, right, you are allowed to
(16:59):
request cancellation of PMIusing the current value, but a
couple conditions.
Uh, the loan has to be seasonedfor at least two years and the
borrowers have to have anacceptable payment history.
But a couple additional, uh,restrictions here, uh, if less
(17:21):
than five years have elapsedsince the origination of the
loan, uh, then you have to be at75 percent LTV or lower.
If more than five years haveelapsed.
Since the origination of theloan, then you only have to be
(17:42):
at 80 percent or lower.
But keep in mind, this is usinga current appraised value and
not the original value.
So let me recap the keytakeaways from this training
before we end the session today.
Remember that PMI allowsborrowers to finance at higher
(18:05):
than 80 percent loan to value,which gives greater liquidity.
Um, to the market, uh, we dohave, um, single premium
policies, which, uh, can be paidin a lump sum so that you
eliminate the monthly mortgageinsurance expense.
(18:26):
So that if your borrower didn'tqualify because of that extra
300 or 400, whatever is the MIpaying it as a lump sum, you can
get rid of the MI.
We also have lender paid singlepremium MI as another option.
And then remember, on thecancellations, we have automatic
(18:48):
termination at 78, borrowerrequested at 80%, both of the
original value.
And if you want to use thecurrent value, then less than
five years, 75 percent LTV, morethan five years, 80 percent LTV.
So are there any questionsregarding mortgage insurance?
(19:14):
I do not see any questions here.
I'll give it a minute.
So we are good to go and I willsee you for tomorrow's training.
Thank you and have a great day.
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