According to opens in a new windowa report by The Lenders Network, the average down payment in 2016 was 6%. If this is similar to the percentage that you plan on putting down, then your loan will require mortgage insurance. Mortgage insurance is a type of insurance that is required by the lender when putting down less than 20%. Mortgage insurance protects the lender against a loss in circumstances where a borrower defaults on the loan payments and the home is foreclosed upon and resold. If mortgage insurance is going to be factored into your loan, you may be wondering how much control you have over the amount of the premium.
Two types of mortgage insurance
It’s important to clarify there are two types of mortgage insurance: MIP and PMI. Government loans like FHA or USDA have MIP (Mortgage Insurance Premiums) which are a set amount. They do not vary from lender to lender. Conventional loans have PMI, or Private Mortgage Insurance, and this amount can vary by lender.
PMI rates offered to lenders can vary. This is because the overall credit rating and performance of a lender’s loans can earn a lender a reduced rate from the PMI provider. This reduced rate is not a huge amount but it will shave a few dollars off your payment each month.
Many lenders have several PMI providers. But, not all lenders allow their loan officers to have the freedom to select the PMI provider with the lowest rate. In those situations, the PMI provider quoted to you may be selected based on a round robin rotation. Other lenders participate in the profitability of the PMI premium which, again, means you may not be receiving the lowest rate. Look for lenders that directly pass the cost and/or savings of the PMI premium on to you.
PMI providers are not all the same. They compete for business from lenders and offer a variety of products to fit a wide range of buyers. Some PMI providers provide job loss insurance while others offer better rates on upfront premiums.
Unfortunately, as the borrower, you cannot shop around for your mortgage insurance. Only the lender can. However, you can request a specific PMI provider if you qualify for their product and they are offered by your lender.
As you shop lenders and rates make sure you also compare the PMI premium quotes. Work with a lender that has the ability to select the best PMI provider to fit your needs.
All loans subject to credit approval.