Refinancing a Mortgage Loan That Has Private Mortgage Insurance

A conventional loan with Fannie Mae or Freddie Mac requires a 680 credit score to get mortgage insurance. FHA requires a 620 credit score but in some cases there are programs that will accommodate a lower score. Mortgage insurance on conventional loans can be charged monthly, paid as a lump sum, or lender paid where the mortgage insurance is factored into the interest rate. (Known as tax advantage mortgage insurance or TAMI) FHA charges a lump sum premium financed into the loan as well as a smaller monthly charge.

The most common way to remove conventional mortgage insurance is when the mortgage balance gets to be 78% of the value of the home. The borrower calls up his or her lender, does an appraisal, demonstrates the equity and has the PMI removed.

Quite often I am approached by customers who are looking at the Fannie Mae DU Refi Plus or the Freddie Mac Home Relief refinance programs but are unsure how the PMI affects the picture. These are two excellent programs that allow homeowners to lower their rate even if they have no equity left. If the customer had mortgage insurance previously there is a chance that the new loan will not call for mortgage insurance the second time around. It’s up to the investor and the findings.

Every loan approved nowadays is run through an automated underwriting engine. Fannie Mae calls theirs “DU” and Freddie Mac calls theirs “LP”. In addition, individual lenders have “overlays” to the findings so they can filter out the risky loans they don’t want.

Through my experience I have found that customers who had lender paid insurance or lump sum insurance previously will be required to keep mortgage insurance in place with these programs. That means the maximum financing we can do for them through a conventional program is 90% rate and term refinance or 80% cash out refinance. Customers who initially did 90% financing or less have a chance that the findings will not ask for mortgage insurance the second time around. Mortgage holders who initially financed 90.1% to 100% generally will be required to get PMI again. Since Fannie Mae/Freddie Mae cannot accommodate high loan to values with PMI, we turn to FHA for these customers. FHA can still provide a 97% rate and term refinance or 85% cash out refinance with mortgage insurance.

When in doubt, run the deal on line to check the findings first. On larger loans, the lender can pay closing costs which makes the refinance more attractive even if we are bringing the interest rate down as little as 1% and you are forced to keep your PMI .

Written by Preston Ware
First South Mortgage
Tel: 704-542-8057
* http://www.prestonware.com
Email is preston@prestonware.com.