Thinking of purchasing a home with less than 20% down? In this article, we will explain Borrower Paid Mortgage Insurance (BPMI) and Lender Paid Mortgage Insurance (LPMI) to help you determine which type of mortgage insurance is a better choice for your specific financial situation.
What is BPMI?
Borrower paid mortgage insurance is paid on a monthly basis to the loan servicer of your mortgage. Essentially, BPMI is a monthly insurance payment, charged to the borrower for putting less than a 20% down payment. Borrower paid mortgage insurance eventually ends or is canceled when the LTV (Loan-To-Value) falls below 78-80% or the loan is paid in full.
What is LPMI?
Lender paid mortgage insurance is different than BPMI since the borrower pays no monthly mortgage insurance payment. Instead, borrowers agree to a slightly higher interest rate and the monthly PMI payment is bought out. For example, with lender paid mortgage insurance, a borrower might take a slightly higher rate of 4.75% instead of an interest rate of 4.5%.
How To Determine The Type Of Mortgage Insurance That Is Best For You?
There is much debate about which is better, BPMI or LPMI. Since everyone has unique scenarios, there is no clear cut answer as to which is best. The benefit of BPMI is there will be a point where the monthly (MI) mortgage insurance payments will stop. This occurs when the LTV reaches 78-80%. In a growing housing market, it might be better to take BPMI if you expect rapid appreciation in a short amount of time.
With LPMI, it may be advantageous to have a lower mortgage payment, while taking a slightly higher interest rate. LPMI may be the better choice, especially in our current condition of record low interest rates. It might also be beneficial if you don't anticipate being in your mortgage for the life of the loan. At the end of the day, everyone has different financial goals and scenarios, so we urge you to call your mortgage advisor to discuss which home loan options best fit your financial goals.
Tuesday, March 18, 2014
Friday, March 7, 2014
Putting together your Homebuying Team
Home may be where the heart is, but the house-buying process can easily become a headache.
To keep trouble to a minimum, take time to independently evaluate each professional you'll need on your team, from lender to real estate agent to home inspector to title agent. Choose client-focused, experienced pros…preferably referred by trusted sources.
Here are more tips, based on my interviews with consumers and highly rated service providers:
Mortgage lender
Before you start looking at homes, find a reliable lender to pre-approve you for financing. This is especially important now, given the strict government regulation of home financing.
Seek a responsive bank or mortgage professional who keeps the terms of the agreement consistent, and who communicates well so that paperwork flows in a timely fashion.
Real estate agent
Look for an agent who will communicate with you promptly throughout the process.
Avoid an agent who steers you only to his or her own listings or those of the company. Be wary of hiring relatives or friends with limited experience or agents who work only part time. Make sure the agent you hire has the computer skills and web savvy to set up automated searches so you're notified quickly of new listings.
Confirm that an agent is properly licensed and in good professional standing. All states require that real estate agents be licensed. Most states have sites that provide information on disciplinary action taken against licensed agents.
If you end up under tied to an agent you're unhappy with, ask to be released from the arrangement. If that fails, consider asking a local real estate attorney for advice.
Home inspector
Look for home inspectors who go beyond state regulatory requirements (though not all states require inspectors to be licensed), receive continued education and belong to a professional organization, such as the American Society of Home Inspectors.
ASHI requires that members follow a code of ethics that prohibits receipt of referral fees. Ethical inspectors don't take kickbacks from contractors who repair problems an inspection uncovers, or receive money from real estate agents who refer their clients.
Be sure to schedule an inspection early enough in the process that there's time to deal with any repair issues or other problems.
To prevent last-minute problems at closing, check that the sellers take care of any agreed-upon repairs.
Closing Attorney
Lenders or real estate agents may recommend a closing attorney, but to avoid hiring someone with a conflict of interest, be sure to ask about affiliations between parties. Keep in mind that the closing attorney represents the lender at closing, but is obligated to be fair and honest with all parties.
To keep trouble to a minimum, take time to independently evaluate each professional you'll need on your team, from lender to real estate agent to home inspector to title agent. Choose client-focused, experienced pros…preferably referred by trusted sources.
Here are more tips, based on my interviews with consumers and highly rated service providers:
Mortgage lender
Before you start looking at homes, find a reliable lender to pre-approve you for financing. This is especially important now, given the strict government regulation of home financing.
Seek a responsive bank or mortgage professional who keeps the terms of the agreement consistent, and who communicates well so that paperwork flows in a timely fashion.
Real estate agent
Look for an agent who will communicate with you promptly throughout the process.
Avoid an agent who steers you only to his or her own listings or those of the company. Be wary of hiring relatives or friends with limited experience or agents who work only part time. Make sure the agent you hire has the computer skills and web savvy to set up automated searches so you're notified quickly of new listings.
Confirm that an agent is properly licensed and in good professional standing. All states require that real estate agents be licensed. Most states have sites that provide information on disciplinary action taken against licensed agents.
If you end up under tied to an agent you're unhappy with, ask to be released from the arrangement. If that fails, consider asking a local real estate attorney for advice.
Home inspector
Look for home inspectors who go beyond state regulatory requirements (though not all states require inspectors to be licensed), receive continued education and belong to a professional organization, such as the American Society of Home Inspectors.
ASHI requires that members follow a code of ethics that prohibits receipt of referral fees. Ethical inspectors don't take kickbacks from contractors who repair problems an inspection uncovers, or receive money from real estate agents who refer their clients.
Be sure to schedule an inspection early enough in the process that there's time to deal with any repair issues or other problems.
To prevent last-minute problems at closing, check that the sellers take care of any agreed-upon repairs.
Closing Attorney
Lenders or real estate agents may recommend a closing attorney, but to avoid hiring someone with a conflict of interest, be sure to ask about affiliations between parties. Keep in mind that the closing attorney represents the lender at closing, but is obligated to be fair and honest with all parties.
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