Over the past few years, home owners have enjoyed deducting private mortgage insurance (pmi) premiums from their income tax. This is also true for government forms of mortgage insurance (aka funding fee or guarantee fee) with FHA, VA and USDA mortgage loans. This benefit is coming to an end effective on 2014 tax returns.
It’s back… the 80/10/10 mortgage program which allows home buyers to put just 10% down and avoid having private mortgage insurance via a second mortgage/home equity line of creedit. The second mortgage/home equity line of credit technically does not have to be at 10% with the first mortgage at 80% of the loan to value (sales price). Often times, the mortgages may be structured around conforming loan limits, as long as the total combined loan to value is 90%.
If you have been waiting for Congress to pass HARP 3.0 or have been previously turned down for a refinance because of lost equity in your home, you might consider trying to refinance again.
I currently pay PMI on my mortgage, if I refinance under HARP 2.0, after refinance, will the PMI still exists? Would the PMI premium be lower since the amount refinanced is lesser than the previous mortgage?
Yes, if you currently pay PMI on your HARP 2.0 eligible mortgage, you will also have private mortgage insurance in your new mortgage payment with your new refinanced mortgage. It will be based on the same coverage (percentage) amount as your existing pmi. So if your mortgage balance is lower, the monthly pmi payment may be slightly lower as well.
I recommend comparing your existing payment (PIMI) to the proposed new payment, factoring in when your existing PMI may drop off. If you’re within months from your existing pmi dropping off, it could be worth delaying refinancing, however, if t’s after December 2013 (when HARP 2.0 is currently scheduled to terminate) it’s probably in your favor to refinance now.
If your home is in Washington state, where I am licensed to originate, I’m happy to help you.
This is a question that I’m often asked by Washington home owners who are considering refinancing their current conventional mortgage using the HARP 2.0 program. The answers I’ve received from private mortgage insurance companies vary from “it’s up to the mortgage servicer” to “when the new loans principal reaches 78% loan to value”.
If your current loan to value is triple-digit because of being underwater, the thought of paying private mortgage insurance for years may not sound appealing. Here are some points I encourage my clients to consider:
- determine when your existing private mortgage insurance is set to terminate. If it’s before December 2013 (assuming the HARP program is not terminated early, which Fannie and Freddie have reserved the right to do) you could consider delaying your HARP refi so that you won’t have PMI on the new loan.
- compare your existing principal and interest payment (excluding the private mortgage insurance) to the proposed HARP payment including principal, interest plus mortgage insurance. Many of my clients are saving hundreds of dollars each month – even with keeping their mortgage insurance.
- consider how long you plan on keeping your home and what your alternatives may be. If you are underwater and are planning on staying in your home or eventually converting it to a rental property, reducing your payment now may be beneficial. If you are planning on doing a short sale, then refinancing at this time would probably not pencil out.
With HARP 2.0 refinances, when you have private mortgage insurance, most pmi companies are transferring the pmi certificates over to the new lender without any issues. The pmi rates stay the same so if you’re currently paying private mortgage insurance monthly, you can estimate that the new pmi payment will be roughly the same with your new mortgage payment.
If you have lender paid mortgage insurance, often times it was paid for upfront and there will be no private mortgage insurance for the home owner to pay. Sometimes the lender paid mortgage insurance (LPMI) was being paid monthly by the lender and in those cases, the pmi company may convert the policy to “paid monthly” so the borrower can assume it.
If you’re interested in a mortgage rate quote for a HARP 2.0 refinance for your home located anywhere in Washington state, contact me.
The Home Affordable Refi Program (HARP 2.0) is a refinance program to help home owners who have lost home equity take advantage of today’s historic low interest rates. In order to qualify for this program, the existing mortgage must have been securitized by Fannie Mae or Freddie Mac prior to June 1, 2009. Learn more about the HARP 2.0 program here.
Loans with private mortgage or lender paid mortgage insurance (LPMI) who meet the securitization requirement are also eligible for HARP 2.0. The terms of the private mortgage insurance, as far as the rate, remains the same as what the home owner has on their existing loan. The existing coverage is transferred to the new HARP 2.0 mortgage if the coverage is still in effect.
Borrower Paid Mortgage Insurance (bpmi) is the most traditional form of mortgage insurance. Homeowners will see this in their monthly mortgage payment. If you currently have private mortgage insurance included in your monthly mortgage payment, you will have it in your new HARP 2.0 mortgage payment too.
Lender Paid Mortgage Insurance (lpmi) is not “seen” in your mortgage payment. LPMI is essentially financed into your loan. Homeowners who have LPMI probably traded the monthly pmi payment for a slightly higher interest rate when they obtained their last mortgage with a loan to value greater than 80%. Often times, LPMI scenarios offered lower payments than bpmi or combo loans at the time they were originated.
Some mortgages with LPMI were “single premium” meaning the coverage was paid for in one lump “single premium”. Single premium LPMI may be transferred to a new HARP 2.0 mortgage.
It’s also possible that the existing LPMI may be paid monthly by the lender. In this case, the private mortgage insurance company may be able to convert the “LPMI” from “lender paid” to “borrower paid”. The borrower is trading their higher rate mortgage with LPMI for a much lower rate with monthly pmi in their mortgage payment. The monthly savings has been significant.
It’s my understanding that once PMI is transferred to a new HARP 2.0 mortgage, private mortgage insurance companies consider this a new loan. This means that when the pmi may drop off is reset. Typically pmi drops off your mortgage when your loan to value reaches 78% of the mortgages loan to value based on the appraised value. If your home is significantly underwater, the private mortgage insurance will likely remain until you can refinance. PLEASE DO NOT LET THIS STOP YOU FROM GETTING A HARP 2.0 QUOTE. Mortgage rate quotes are free and it’s doesn’t hurt to find out what your options are. Click here for your HARP 2.0 quote for your home located anywhere in Washington state.
Here are two scenarios from quotes I provided yesterday, May 10, 2012, for HARP 2.0 mortgages with existing lender paid mortgage insurance (both borrowers have excellent credit):
Owner occupied home in Federal Way with a loan amount of $283,000 and an estimated value of $186,000 with LPMI single premium. With 30 year fixed mortgage and a rate of 4.375% (apr 4.515) they are reducing their monthly mortgage payment by $459 per month!
Owner occupied home in Renton with a loan amount of $311,000 and an estimated value of $215,000 with LPMI that was being paid monthly by the lender. 30 year fixed mortgage and a rate of 4.500% (apr 4.569%) they are reducing their monthly mortgage payment by $422 even with the lpmi converted to borrower paid.
NOTE: The difference in rate above due to having a mortgage priced with discount or rebate. How you have your mortgage priced (with discount or rebate credit) is up to you!
If you would like me to provide you a quote for your HARP 2.0 refinance on your home located anywhere in Washington, please click here.
I am required to have the language below if I am soliciting your Home Affordable Refi for your home in Washington…and yes, I would love to help you with your HARP (or any) refinance:
Freddie Mac and Fannie Mae have adopted changes to the Home Affordable Refinance program (HARP) and you may be eligible to take advantages of these changes.
If your mortgage is owned or guaranteed by either Freddie Mac or Fannie Mae, you may be eligible to refinance your mortgage under the enhanced and expanded provisions of HARP.
You can determine whether your mortgage is owned by either Freddie Mac or Fannie Mae by checking the following websites:
I was recently contacted by a home buyer in Seattle who wanted to know what mortgage programs we have available for a sales price of $500,000 with a 10% down payment. With less than 20% down, the loan will probably have mortgage insurance unless they can find a Fannie Mae Homepath property.
Let’s review some scenarios assuming the home buyers have excellent credit (scores over 740) and a 30 day closing with a loan amount of $450,000. With a 10% down payment, the seller can pay up to 3% (Freddie Mac) or 6% (Fannie Mae) with a conforming high balance mortgage. Rates quotes are effective as of 5:00 pm on January 24, 2012. For your personal rate quote for your home located anywhere in Washington, click here.
Conventional 30 Year Fixed with Private Mortgage Insurance.
4.375% with a PIMI (principal, interest and private mortgage insurance) payment of $2543.03 and with closing cost of $3074 (apr 4.858).
4.125% has a PIMI of $2477.17 and will cost more in discount points with closing cost of $7988 (apr 4.686).
4.500% has a PIMI of $2422.58. The payment is lower due to the lower pmi rate since a portion of it is paid for “up front’ as a “split premium” similar to FHA except at a much reduced cost. Net closing cost, after lender credit applied with rebate pricing is estimated at $5063, including the upfront pmi (apr 4.856).
For the above scenarios, it will take about 7 years for the private mortgage insurance to drop off of the mortgage payments, at which time, the home owner will benefit from having a reduced payment. When considering a second mortgage piggy back scenario, you may want to estimate how long you will have the second mortgage and what the cost will be over the life of the loan compared to private mortgage insurance.
Fannie Mae Homepath will require the buyers find a Fannie Mae REO property that is eligible for financing utilizing a Homepath mortgage. I just checked Homepath.com and found the most expensive home currently listed in Seattle is $449,000 (which you can actually purchase with as little as 3% down payment). Homepath Mortgages do not require an appraisal nor do they have private mortgage insurance. For the comparison purposes, the following quote is based on a $500,000 sales price with 10% down payment using Fannie Mae Homepath:
5.125% for a 30 year fixed with a principal and interest payment of $2450.19 and closing cost estimated at $2762 (apr 5.187).
FHA is an option for these buyers however I would only recommend it IF:
- buyers are considering allowing their mortgage to be assumed in the future;
- buyers are converting existing home into a rental since FHA requires less reserves than conventional financing;
- credit scores are lower
Here is how an FHA high balance loan would compare based on today’s pricing:
3.750% for a 30 year fixed with a PIMI of $2513.91 with $2782.50 for closing cost assuming the upfront MIP is financed (apr 4.397).
I am seeing sellers very open to paying for closing cost. I’m also hearing from my clients in the Seattle area that homes that are new on the market and not short sales have been moving fairly quickly.
If I can provide you with a rate quote or help you prepare for buying a home anywhere in Washington, please contact me.