Private Mortgage Insurance Approvals and Denials
by Mike in Virginia, by Elizabeth in New York, and by Mike in Illinois
Ask Kate about private mortgage insurance approvals and denials: Mike in Virginia asks if 20% equity, due to an appraised value, can eliminate the need for mortgage insurance (PMI/MI). Elizabeth wants to know why her refinance lender is requiring MI when her loan-to-value is less than 80%. Mike in Illinois suspects that his lender knows more than they want to admit regarding his mortgage insurance denial.
But before I answer these PMI questions, keep in mind that private mortgage insurance should not be confused with mortgage life insurance.
Mortgage life insurance pays off a borrower's mortgage in the event of death or disability. Private mortgage insurance allows borrowers to finance homes with less than 20% equity or down payment. It also insures the lender should the borrower default on house payments.
Okay, onto the Ask Kate questions and answers.
Avoiding Private Mortgage Insurance With No Down Payment By Mike in Virginia
My daughter is buying a home well under its appraised value, by more than 20 percent.
Will the mortgage lender still require her to purchase private mortgage insurance if her down payment is negligible?
Ask Kate answers: Avoiding PMI With No Down Payment
For the vast majority of mortgage programs, there is one basic guideline that determines whether or not a home buyer will be required to pay private mortgage insurance in their monthly house payment.
Not sure what PMI is and why some mortgage borrowers are required to pay it? Go to What Is PMI?
for answers you can depend on.
Appraised Value vs Purchase Price
The need for mortgage insurance is based on the appraised value or purchase price, whichever is less
For example, let's assume the purchase price of a home is $100,000 but it appraises for $120,000 (20% above the purchase price).
In this scenario, would the home buyer need a down payment since the appraised value is 20% higher than the purchase price? The answer is yes.
To avoid PMI, the borrower would need a down payment of $20,000 (20% of the purchase price) even though the appraised value is higher and seemingly creates equity.
Getting Rid of PMI
Assuming though that the real estate market continues to appreciate, the built-in equity due to the higher appraised value might help get rid of the MI, should your daughter choose to refinance in the future.
For various ways to get rid of PMI, go to How to Cancel Your Private Mortgage Insurance
Private Mortgage Insurance With More Than 20% Equity By Elizabeth from Staten Island, NY
I am refinancing my mortgage - my house is valued at $350K, and my balance is $152K.
My previous rate was 5.75 and they are now offering 3.875 with a cash out of $50K.
I have never been late in my mortgage payments on this primary residence since 1994. According to the figures, they gave me an additional $238.00 is added to my monthly mortgage for PMI.
Ask Kate answers: PMI With More Than 20% Equity
Assuming that you are refinancing your primary home, banks and lenders cannot charge mortgage insurance when homeowners have at least 20% equity in their homes.
Here's another way to say this. If you have an 80% loan-to-value (or less) when you get new financing, your lender or bank cannot charge mortgage insurance.
How to Calculate Loan-to-Value
To calculate an estimated loan-to-value, add closing costs and any cash-out to your current loan balance. Let's ballpark that figure at $210,000.
Now divide $210,0000 (the new loan amount) by $350,000 (the appraised value). This equals an estimated loan-to-value ratio of 60%, well under 80%.
Go back to your lender and point out your estimated loan-to-value. Request an explanation for PMI being added to your payment in spite of your loan-to-value appearing to be less than 80%.
But keep in mind, it's possible that I'm missing a crucial piece to the puzzle such as a lien against your property that must be paid off. The pay-off could raise your loan amount and create a need for PMI.
If you do not feel satisfied with your lender's explanation, call New York's Attorney General helpline at 800-771-7755 to file a complaint.
Another solution would be to make loan application with another lender or bank.
Now go here to learn how to estimate the cost of mortgage insurance... How Do Lenders Calculate PMI?
Private Mortgage Insurance Approval With Low Credit Scores By Mike from Elburn, IL
Why do banks say they can give you a mortgage with a credit score of 640, when private mortgage insurance companies usually require a score to be quite a bit higher?
Ask Kate answers: PMI Approval With Low Credit Scores
The answer to your question is so brief, it is embarrassing. In short, they are passing the buck!
It is easier for the bank to say that the mortgage insurance company turned you down than take the blame for a loan denial. But doing so is irresponsible behavior.
My advice is to pick a lender than has enough backbone to tell you upfront that your chances for full loan approval (which includes the mortgage insurance approval) are at risk due to your credit score.
I had in mind the problem you describe when I wrote this page many years ago... PMI Decision Making and the Squeaky Wheel
Get practical help regarding mortgage insurance at Ask Kate About Private Mortgage Insurance
where I answer question upon question from borrowers who are having trouble with PMI approvals and denials as well as getting rid of PMI.
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