This article is sponsored by our good friend at Mortgage Lending Solutions. If you would like to speak with a mortgage expert about how mortgage insurance or PMI could impact your next mortgage, Chris “CJ” Williams is the guy you want to talk to!

2016 is upon us. With a new year comes new resolutions, new goals, and renewed excitement in what the year has in store for each of us. There will be weddings, births, and new home purchases. The real estate market will be primed for new listings. The real estate market here in Beaver County is especially strong, and will no doubt explode if Shell confirms its plans for a cracker plant in Potter Township along the banks of the Ohio. ReMax realtor Mark Gulla said, “As a realtor, you always hear the question when is the best time to list? The answer is today! The common misconception is that the best time to list is in the spring. Spring is without a doubt the busiest time of the year in the real estate market, but that may not be a good thing when you want to list your house. The competition is at its peak!
If you decide to list your house in the winter, it may be your best move. You will have less competition in the winter, and if you have buyers who are willing to get snow in their boots to check out your home, you know they are serious buyers.”

Your Beaver County continues to partner with Mortgage Lending Solutions in Monaca as the place to go for all of your mortgage needs. We recommend them without hesitation. I recently spoke with mortgage consultant Chris “C.J.” Williams about the need and purpose of mortgage insurance. Chris answers some pertinent questions you may have about mortgage insurance, and the importance of MI from the lender’s perspective.

What is mortgage insurance and why does a homeowner need it?

Mortgage insurance is required by the lenders on a conventional loan when the amount borrowed by the customer is greater than 80% of the purchase price. The insurance protects the lender against loss in the event the borrower doesn’t pay the mortgage payments.

When a lender is forced to foreclose on a house or take back a house, the lender incurs a lot of costs. These costs include the cost of legal action against the borrower and the cost of physically taking possession of the house and maintaining the house before sale.

Often the house is not in the same good shape when it is foreclosed as it was when it was purchased, so the lender often sells the house below what the previous owner paid for the property, and the lender loses money on the transaction. The mortgage insurance helps to prevent those losses.

Once the loan balance drops below 80% of the original purchase amount, the mortgage insurance on conventional loans drops off and ends, if the home loan is current and paid as agreed.

What about unconventional loans such as FHA and other government loans?

FHA, VA and Guaranteed Rural Housing loans are all low down payment loans. Each of these loan types require private mortgage insurance, which is charged to the borrower and financed into the loan amount.

The private mortgage insurance effectively does the same thing as mortgage insurance, and it is required on each of these loan types. The mortgage insurance on FHA, VA and GRH loans does not drop off the loan while the loan is still outstanding.

What does mortgage insurance cover?

Mortgage insurance does not benefit the borrower at all. It does not protect the borrower against default, and the cost of the mortgage insurance is not tax deductible, such as mortgage interest.

The mortgage insurance only benefits the lender and the investors who lend the money for the mortgage. It protects the lender and investors against losses due to default

Is mortgage insurance necessary on all mortgages or only certain types of mortgages? Does MLS offer mortgage insurance?

Mortgage Insurance (MI) is required on all FHA, VA and Guaranteed Rural Housing loans, regardless of the loan to value of the loan. Mortgage Insurance (MI) is required on conventional loans where the balance of the loan is greater than 80% of the purchase price or appraised home value.

Some conventional loans which are over 80%  loan to value allow the borrower to increase the interest rate slightly and not have mortgage insurance. This is called using Lender Paid Mortgage Insurance.

Lender Paid Mortgage Insurance benefits the borrower by increasing the interest amount paid on the loan, which is tax deductible, versus paying a monthly portion of the payment in mortgage insurance, which is has also recently become tax deductible through 2015 and 2016.  This allowance will be up for renewal in 2016 and may be allowed again or it may expire.  The tax deductibility for mortgage insurance is income qualified.  For borrower’s making less than $100,000.00 per year, the full tax deduction is allowed.  The deduction is phased down as the borrower’s income goes up.

How much does mortgage insurance typically cost? Is it paid with the mortgage and into an escrow account?

FHA loans usually have a two part mortgage insurance premium; an Upfront Mortgage Insurance Premium which is 1.75% of the amount financed and is usually financed with the mortgage balance, and a monthly mortgage insurance premium which is paid with the monthly mortgage payment.

For example, if a borrower is buying a home for $100,000 using FHA financing, the borrower will pay $1750.00 in Upfront Mortgage Insurance, and the borrower will also pay .85% ($850.00), which is divided by 12 to give a monthly figure ($70.83). This is paid with the mortgage payment.

If you are in the market to purchase a new home, contact Mortgage Lending Solutions in Monaca. Their staff is made up of consummate professionals who are extremely knowledgeable, friendly, and ready to serve your needs.

Want to Learn More Details About Mortgage Insurance?

If you have any questions at all about how mortgage insurance or PMI will impact your mortgage, don’t hesitate to contact Chris “CJ” Williams at Mortgage Lending Solutions today!

Marc is a lifelong resident of Beaver County. A 2001 graduate of Center High School and 2005 graduate of Point Park University, Marc is employed by the Pennsylvania Cyber Charter School and officiates high school and college football. Follow Marc on Twitter, Snapchat, and Instagram @marcgrando