Private Mortgage Insurance: What Borrowers Should Know Before Shopping for a New Home
MI offers the flexibility of lower down payments with a range of plans, and it’s cancellable—unlike some FHA coverage.
GREENSBORO, NC, June 12, 2014
With private mortgage insurance (MI), qualified buyers can purchase a home with a down payment of as little as 5 percent—rather than the 20 percent that most lenders require.
The median new home price in the U.S. stood at $275,800 in April, according to the U.S. Census Bureau, and many industry observers expect that figure to rise during 2014.
With home prices climbing even higher in certain areas of the country, MI makes home ownership a reality earlier for many borrowers—as much as 10 years earlier, according to numerous studies.
"Large down payment requirements can restrict choices. MI provides the freedom and flexibility for individuals and families with solid credit and earning power to purchase a dream home," said Donna DeMaio, president and CEO, United Guaranty. "Buyers can choose from a wide variety of payment options, and coverage is cancelled as soon as it's no longer required by the investor."
MI insures the lender against loss due to borrower default on mortgage payments. With the protection of MI, lenders can lend up to 95 percent of the value of the property—instead of limiting the loan to 80 percent.
MI is cancelled automatically when the homeowner achieves a pre-determined equity level, which may reduce total monthly mortgage payments. Under the Federal Homeowners Protection Act of 1998:
- Coverage on the primary residence must be cancelled by the lender/servicer once the mortgage balance is scheduled to drop to 78 percent of the original value of the property (for loans originated after July 29, 1999).
- Borrowers may be able to request cancellation of coverage even earlier—when the loan balance reaches 80 percent of the original value. Rules for borrower-requested cancellation vary by state and may involve other considerations such as payment history and current home valuation. Homeowners can get more details from their mortgage servicer or by researching the law at federalreserve.gov/boarddocs.
In comparison, FHA's MI is not cancellable if the loan-to-value (LTV) ratio is greater than 90 percent (meaning the buyer's down payment is less than 10 percent). It is cancellable after 11 years if the LTV is less than or equal to 90 percent. Over the life of a 30-year mortgage, the FHA insurance premium can be as much as four times the cost of United Guaranty's cancellable MI.
United Guaranty also provides multiple payment options, including the PostPay®, a monthly premium that requires no premium when the loan closes—benefitting buyers seeking lower closing costs. The lender will collect the monthly premium as part of the borrower's monthly mortgage payment.
For a comparison showing MI costs for FHA versus United Guaranty, visit ugcorp.com/FHA.
About United Guaranty1
United Guaranty Corporation and its subsidiaries provide certainty to mortgage lenders through world-class underwriting, quality risk solutions, and dynamic pricing available through Performance Premium,® the industry's only MI pricing that is truly risk-based. Established in Greensboro, North Carolina, in 1963, United Guaranty is a company of American International Group, Inc.
Jo Fleischer, Director – Media Relations
O: 336.333.0433 | C: 336.609.3957
1 United Guaranty is a marketing term for United Guaranty Residential Insurance Company and United Guaranty Mortgage Indemnity Company. United Guaranty is a registered mark. Coverage is available through admitted company only.