If you are wanting to learn what mortgage insurance is and how it does work, watch this short video, where I talk about PMI, MI and funding fees.
There’s a lot of confusion on what mortgage insurance is, how does mortgage insurance work and what’s the difference between mortgage insurance (MI) and private mortgage insurance (PMI).
Here are 3 important takeaways:
1. Conventional Loans have Private Mortgage Insurance (PMI)
2. FHA Loans have Mortgage Insurance (MI)
3. VA Loans have a Funding Fee
Hi everyone. This is your Tampa Bay realtor Lance Mohr and in this video I want to talk about what is mortgage insurance. How does mortgage insurance work and what are the different types of mortgage insurance. I’m going to talk about that in this video.
What is mortgage insurance? I get a lot of questions on this a lot of people are very confused. They say words like mortgage insurance and PMI and what is that? How does it work? Let me break it down in three different types.
The first is on a conventional loan. When I say conventional, I pretty much mean financing by either a Fannie Mae or a Freddie Mac . The second is on a FHA loan. So the Federal Housing Administration which is a department within HUD Housing and urban Development. The third is VA which is Veterans Administration.
Let me talk about VA first. A lot of people think oh well they don’t have mortgage insurance and in a way that would be right because what VA does is they have a one-time upfront fee that you can roll into the price of the home and it’s called a funding fee. So you’re not like a typical mortgage insurance. You’re not paying upfront and then every month or you’re not paying just every month. So you’re paying a one-time fee and that’s it. You’re sort of one and done. Now the thing about the insurance. The thing about the funding fee is this VA’s way being the government of ensuring the mortgage of default. If they go into the default the lenders not on the hook. Which is the whole reason for the funding fee or mortgage insurance in the first place.
Now the second one is FHA. Now FHA program that’s primarily designed if you’re not going to put a lot of money down but there’s a lot of other great benefits to FHA. The one negative to FHA is their mortgage insurance. It’s mortgage not private mortgage insurance. There’s this EMI for mortgage insurance it stays with you the entire time of the loan. If you live in a home and you have the FHA loan for five years, you’re going to have mortgage insurance for five years. If you have the FHA loan for 25 years you’re going to have the mortgage insurance for 25 years. The only way you are going to get rid of it is to get rid of the loan and that could be a good it could be bad. So it’s not you don’t fall under that rule where you’re going to get 20% equity and then you automatically get it removed that isn’t what FHA does. Now again, a lot like VA if they chase the govt. so they’re insuring the lender in case there’s a default.
The third is conventional and this is what most people talk about when they talk about mortgage insurance is called PMI or it’s called private mortgage insurance. The difference is FHA is mortgage insurance MI. Conventional as PMI private mortgage insurance because they’re not the govt. they’re private companies that are that are basically insuring the lender of default. Now if you put down 20% on a loan you don’t have to worry about mortgage insurance or private mortgage insurance. I should say you won’t have it if you put down 15% or 10% or 5% you’re going to have mortgage insurance because the lender is going to require. Now the less money you put down the more reliability it is. So the higher the insurance cost. So someone putdown 5% is going to have a higher insurance than someone putting down 10% or someone pinning down 10%. Their insurance is going to be more than someone putting down 15%. Most of the time people just put down 5 or 10% then it jumps to 20% but that’s basically how it works. Again they’re insuring the lender in case of default.
Now on a conventional if you get that 20% equity then you could get the mortgage insurance taken off. What usually happens and I don’t want to speak for every mortgage company out there but I always tell people. When they feel they reach that 20% mark pick up the phone give a lender a call tell him you would like to take the mortgage insurance off. Sometimes they just do everything in house to see what the value is. Other times they might send out an appraisal and you may have to pay for the appraisal but you know maybe 350 dollars or something and they’ll value it and to see where you are. So if you could take the mortgage insurance off your home. That’s how mortgage insurance works or private mortgage insurance or a funding fee. Again, it’s just protecting the lenders assets in case the buyer defaults on the one. Hopefully this never happens.
If you have any questions at all don’t hesitate to give me a call (813-317-4009) or you know I always tell people call a lender they could give you all the detailed information in your area and what you’re looking for but I’d be more than happy to answer any questions if I can. I hope you have a wonderful day. If you’re looking for an agent in Tampa give me a call (813-317-4009) I’d love to talk to you. If not, I wish you the best of luck and thank you for watching my YouTube Videos. Don’t forget to if you like these videos give me a thumbs up. Thank you very much.