Private Mortgage Insurance and Attorneys: How Does It Affect You?

If you are offering a down payment of less than 20% of your home’s purchase price, private mortgage insurance, or PMI is usually a required expense. Private mortgage insurance protects the investor from financial loss if you stop making mortgage payments, or if you fail to pay off the loan. 

How Does PMI Affect Attorneys?

With Attorney Mortgage, not at all. We offer a no-down-payment, no-PMI program specifically for attorneys. This benefit allows you to either save money or purchase a higher value home. 

Private Mortgage Insurance vs. Mortgage Insurance Premiums

If you are unable to qualify for our special Attorney loan program, Attorney Mortgage can help you apply for a loan with the Federal Housing Administration, The government (FHA) requires a mortgage insurance premium, or MIP.  Mortgage insurance protects the investor against losses that may result from home mortgage defaults. FHA mortgages typically require lower down payments, and in some cases credit score requirements are lower than conventional mortgages. This is helpful to first-time home buyers or low credit score buyers. The MIP is backed by the federal government but is managed by the third-party lender. MIP remains in place for the life of the loan but can be removed with refinancing. Talk to your lender at Attorney Mortgage if you currently have a loan that includes MIP.

When financing a conventional loan for more than 80% of your new home’s purchase price, your lender will require private mortgage insurance, or PMI. If you are unable to offer 20% as a down payment, lenders will consider you a higher risk. PMI, like MIP, protects the investor if you default on the loan. But private mortgage insurance remains in place while your loan balance is 80% or more of the loan amount. PMI can be removed when you owe less than 80% of the original loan amount. 

The U.S. Mortgage Insurers (USMI) reports that PMI “helps bridge the down payment gap,” helping new homebuyers obtain financing. In fact, USMI says that in 2021, PMI helped approximately 2 million people purchase or refinance a home. 

A recent Zillow report shows that almost 70% of renters say they don’t attempt to buy a home because they can’t afford the down payment. More than 50% assume they may not qualify for a mortgage. The truth is, you may not need a large down payment or an excellent credit score to purchase a home. Attorney Mortgage can show you how private mortgage insurance may help you on the road to home ownership. 

How Much Does PMI Cost?

Generally, private mortgage insurance costs range from 0.5% to 1.5% of the amount of your loan. If you purchase a home and borrow $300,000, you will likely pay $125 to $375 monthly to cover the PMI or pay a lump sum premium of $3,000 to $6,000. 

You can pay PMI in several ways:

• A monthly payment that is added to the cost of your mortgage payment,
• A premium that is paid in full at the time of closing,
• A portion of the premium paid up-front, at the time of closing, and a monthly payment for the remaining amount.

How Does PMI Help the Borrower?

PMI does increase your mortgage payments. But there are benefits:

• You may be able to buy your home now, even if you have student loans. You may be able to qualify for financing with little to no down payment, while using private mortgage insurance. Newly degreed attorneys, with Attorney Mortgage, can purchase a home with lower down payments and no PMI, instead of waiting until they save 20% of their estimated loan amount.
• It is temporary. Unlike MIP, which remains with the loan until it is paid in full, PMI can be removed. Once you have paid down 20% of the mortgage, you can ask that the PMI be removed. Lenders will automatically remove the PMI if you reach 78% loan-to-value (LTV) ratio, assuming you are up to date on your payments. 
• You can start to build wealth now. A home is a valuable asset that can affect your net worth. The sooner you purchase a home, the faster you begin to build equity. If your home increases in value, you might be able to have a new appraisal done to show that your equity is above 20%. Call Attorney Mortgage for more information about this process. 

Are There Ways to Save on Private Mortgage Insurance?

Attorney Mortgage can help you navigate the loan process and find the best rates possible for both mortgage and PMI payments. Your lender will help you:

• Determine your credit score. A credit score is based on information in your credit reports and can affect loan approvals. Credit scores generally range from 300 to 850. The higher the score, the less a lender perceives you as a risk. Your credit score will help your lender determine interest rates and terms of your loan – including the rate of your PMI. Three consumer credit bureaus – Experian, Equifax, and TransUnion – produce credit reports that include information from credit card companies, lenders, and other institutions. Ask your Attorney Mortgage lender about obtaining your credit score. 
• Find out the appraised value of the home or estimate the cost using your offer or your planned purchase range. The total loan amount will be the amount of the home price less the amount of the down payment. The loan-to-value (LTV) ratio is determined by dividing the loan amount by the purchase price, then multiplying by 100 to find out the percentage. If the amount is 80% or lower, you will not be required to pay PMI. 
• Look at a variety of mortgage options. PMI is not necessarily a requirement if you pay a down payment of less than 20% on your new home. Talk to your lender at Attorney Mortgage about loan products that don’t require PMI, or for other mortgage options that lower your expenses. 

If you are a newly degreed attorney, an established attorney looking for a home, or if you are ready to refinance your home, Attorney Mortgage can help you navigate the loan process. Begin to build long-term wealth and create financial flexibility through home ownership today.  Contact us or call (816) 456-7478.