April 4, 2019 | Back to Blog Homepage
According to a recent article by smart asset, the average down payment in 2018 was 6 percent. For first time homebuyers, that amount was even less. If your buyers expect to put down a similar percentage, then your buyer’s government or conventional loan will require mortgage insurance.
Mortgage insurance is a type of insurance that is required by the lender when putting down less than 20 percent. 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 the loan, your buyer may be wondering how much control they have over the amount of the premium.
It’s important to clarify there are two types of mortgage insurance: MIP and PMI. Government loans like FHA or USDA have MIP and the mortgage insurance premiums and/or upfront fees are a set amount that will 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 because the overall credit rating and performance rating of lenders can earn them a reduced rate from the PMI provider. Ameris has an excellent overall credit rating with our PMI providers. This reduced rate is not a huge amount, but it will shave a few dollars off the buyer’s payment each month.
While many lenders have several PMI providers, not all lenders allow their mortgage bankers to have the freedom to select the PMI provider with the lowest rate. In those situations, the PMI provider quoted to the buyer may be selected based on a round robin rotation and not by the lowest rate. Other lenders participate in the profitability of the PMI premium which, again, means the buyer may not be receiving the lowest rate. Ameris Bank allows its mortgage bankers to shop around for the lowest rate for your buyers. We do not participate in the profitability of the PMI premium, so we can directly pass the cost and/or savings of the PMI premium to the buyer.
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. If these features are important to your buyers, be sure to share that with your mortgage banker so that they can present quotes with those features to the buyer.
Unfortunately, the buyer cannot directly shop around for private mortgage insurance. Only the lender can. As you assist your buyer in comparing lenders and rates make sure you also compare the PMI premium quoted and work with a lender, like Ameris Bank, that has the ability to select the best PMI provider to fit your buyer’s needs.
The information voiced in this material is for general information and is not intended to provide specific advice or recommendations for any individual.