Private mortgage insurance has a little black rain cloud that follows it around. It’s a great way for buyers to purchase a home with less than 20% to put down, but it also means the buyers’ monthly costs increase. Understandably, consumers don’t like paying for this since they’re basically paying to protect the lender should they default on the loan – and no one wants to believe they will default on their home loan. For that reason, we as lenders try to do whatever we can to lessen those monthly payments and reduce the stresses of the buying process. Thanks to new tools out on the market, we (lenders) are now able to reduce the monthly PMI premium by using lender and/or seller contributions.
So, what does this mean? Let’s say you’re in a market where the seller will pay some of your closing costs in order to sweeten the deal. Your overall closing costs might come in under what the seller offered to pay. Instead of those funds going back to the seller, they can now be applied to your monthly PMI premium, reducing that overall monthly cost and getting the seller closer to not needing PMI at all.
Additionally, if you as the buyer pick a higher interest rate on your loan, this higher rate enables the lender to contribute funds to reduce or eliminate the monthly PMI payment. While usually no one wants to pay a higher interest rate, there may now be a benefit to that higher rate if you are a buyer that will need PMI.
As a lender for the past 40+ years, I’ve seen a lot of trends and tools come and go in the mortgage space. It’s understandable that this causes confusion among consumers, but I’ve always been of the belief that the more we educate consumers and provide options, the better off we all are. Feel free to leave a comment or message me directly, I’d love to talk to you more about this.
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