Tag: Mortgage

Eliminating mortgage insurance from a conventional loan

Posted on by Evan in General Mortgage Info.


Video Transcript:

Hey there, Evan Swanson here to talk to you today about the elimination of mortgage insurance premiums from a conventional conforming loan.

There seems to be a lot of misinformation and confusion out there about when a consumer can get mortgage insurance premiums eliminated from their mortgage payment.

I like to describe it to customers from a best case and a worst-case perspective. Worst case is what’s written in the law under the Homeowners Protection Act, which is the federal statute, which governs this topic.

What that law says is that a lender can require mortgage insurance premiums to be paid so long as the remaining loan balance is scheduled to be above 78%-80% of the home’s original value. Original value is defined as the lessor of the purchase price or appraised value at the time the loan was taken out.

Worst-case scenario:

On a conventional conforming loan today, with 10% down at today’s interest rates it could take a consumer upwards of 6 years before they reach the point at which they have enough equity that they can have the mortgage insurance eliminated.

Best-case scenario:

Many loan servicers will allow consumers to get out of the mortgage insurance sooner than that, even though federal law doesn’t require them to. I’ve seen policies, which state that after a year, if the consumer has paid down the principle to below 80% of the original value, they can have the insurance removed.

I’ve seen others that show after two years, with the cost of an appraisal, if the consumer can demonstrate a 20% or more equity position that the mortgage insurance can be eliminated at that time. Typically, all these are going to require a clean payment history and some sort of documentation to the lender that the value on the property is what it is.

If you want to learn more about your options to eliminate mortgage insurance or if you want to ask questions, I’d love to be a resource for you and your family. Please, let me know how I can help. Have a great day.

What, when, why mortgage insurance?

Posted on by Evan in General Mortgage Info.

Video Transcription:

Hi! Evan Swanson here to talk to you today about mortgage insurance. What is mortgage insurance, when is it required, and why do banks require it?

First, what is mortgage insurance? Mortgage insurance is insurance that homeowners pay for, and the bank is the beneficiary to the insurance coverage. It protects the bank against losses they would incur in the event of default or foreclosure on the mortgage they make.

When is mortgage insurance required? On conventional loans, mortgage companies typically require mortgage insurance whenever there’s less than 20% down. On FHA loans mortgage insurance is required regardless of down payment.

Why do banks require mortgage insurance? To answer that question we have to go back and look at what banks required prior to mortgage insurance. Banks required that everybody have 20% down and the idea was in the event of a foreclosure the bank would have incurred losses and that means they would have missed out on mortgage payments for somewhere between six and 18 months, meaning missed interest income.

If a person can’t afford to make their mortgage payments chances are they can’t afford to maintain the property so once they get the house back via the foreclosure process there’s deferred maintenance the bank has to pay for. The bank would have had to hire an attorney to execute the foreclosure process and then hire a realtor and pay a commission in order to sell the house. The banks require 20% down as their cushion to ensure that if they had to go through that foreclosure process they can still get their loan proceeds back.

Now there are a variety of ways to pay for mortgage insurance but without 20% down banks are going to require it.

If you’re curious about the different mortgage insurance options available to you and want to learn about them I’d love to be your resource for you. Please contact me today. Thank you.

Can I build my closing costs into my loan amount?

Posted on by Evan in General Mortgage Info., Swanson Home Loans Blog - Mortgage Rate Updates and More

Transcript of video:

Hi, I’m Evan Swanson with Swanson Home Loans & Mortgage Trust, NMLS number 120856. In this video, I’m going to answer a question that I am frequently asked by home buyers, which is can I build my closing costs into my loan amount in order to reduce my cash out of pocket? I’m going to answer this question today from a purchase transaction perspective. I am not going to address the question from a refinance perspective.

The short answer to the question is no. A home buyer typically is not able to add the closing cost into the loan amount. The reason for that has to do with the loan-to-value restrictions of a loan program.

Let’s look at this with an example. Let’s assume there’s a home buyer who’s purchasing a property for $300,000, and the loan program they’re using requires a 5% down payment. That means they would put $15,000 down and take out a loan for $285,000. Let’s assume, for example, the total closing costs, prepaid, and pro-rated payments for that purchase is $7,000. So, without anything happening, purchase price $300,000, 5% down ($15,000) plus $7,000 settlement charges.

The buyer would have to bring in $22,000 to close. If we were to arbitrarily add that $7,000 into the loan amount, that would push the loan up to $292,000, and now the loan-to-value would be 97%. If the loan program doesn’t allow for a loan-to-value of 97%, then unfortunately the buyer is not able to qualify after adding that in.

There is a backdoor way that we can address this. The buyer could make an offer to the seller for $307,000, but at closing I want you to subsequently give me a $7,000 credit back to be applied to my closing costs.” In that instance, the buyer would have to bring in 5% down based on a $307,000 purchase price, which is $15,350, and now the seller is giving a credit to be applied to the closing cost.

So, the buyer is now effectively able to finance their closing cost by buying the property for a higher price and subsequently asking the seller to give a credit. There are some potential issues around that. In some markets, that may not be viable. In addition, the house would have to appraise for $307,000 to collateralize or to cover that additional $7,000 credit being asked for.

Again, can loan closing cost be built into the loan amount?  By default, no, in a purchase transaction. In some instances, you may be able to by effectively building them into your purchase price and subsequently asking the seller to pay them.