Back to Basics: Conveying Mortgage Insurance Benefits to Your Borrowers
Your borrowers worked hard to save up money for a down payment.
For months and years they ate Ramen, skipped going for beers with their friends, and said no to enticing Amazon deals. After all that hard work, they’re ready to empty their bank accounts to put their down payment toward a house.
Depending on the situation, a borrower who would completely deplete their savings to put 20% down on a home could benefit from mortgage insurance. Because, simply put, MI lets borrowers buy a home years sooner with less than a 20% down payment.
While you and your borrower might balk at the additional monthly cost of mortgage insurance, know that it’s a worthwhile choice. There are many mortgage insurance benefits to discuss with your borrower as they decide how much to put down on a house.
Moving into a new house comes with a lot of expenses, especially surprise ones. All those expenses can be financially crippling to borrowers who put all their savings into a down payment. Borrowers, particularly first-time borrowers, often fail to realize just how expensive purchasing and moving into a home can be.
With mortgage insurance, borrowers can put less money down so they can preserve their savings. Borrowers can then use their savings to make improvements on the house, pay for movers, or buy appliances. They can also use preserved savings to pay for surprise damages like needing to remove dead trees or fix rotted siding. Having that additional financial security blanket is one of the most important mortgage insurance benefits.
Preserving savings is also a wise move in case your borrower loses their job or has an accident that results in tons of medical bills. While these scenarios may not be likely, they’re not impossible. Having enough savings in the bank can help mitigate financial crises.
With mortgage insurance, borrowers don’t need to wait to save for a 20% down payment. Instead, they can opt to have mortgage insurance on their loan and put as little as 3% down on a house. This means they’ll spend less time saving for their down payment.
By reducing the amount of time a borrower needs to save, they can start looking for a house earlier. It also gives them more flexibility to speed up or slow down their search if they’re waiting for mortgage rates or housing inventory to change.
Increase Buying Power
Mortgage insurance secures the loan for you, but in many cases it also means borrowers may be able to afford to buy a house at a higher price point than they could have with a 20% down payment.
Think of it like this: a borrower has $30,000 in the bank. That’s a 20% down payment on a $150,000 home. In another situation, it’s a 12% down payment on a $250,000 house. In one other, it’s an 8% down payment on a $375,000 house.
High Score, Low Rates
Good credit scores aren’t just good for your borrower’s mortgage rates. They’re also good for getting your borrowers even better MI rates. It’s just another way how a borrower who puts in the effort to maintain a high credit score can reap the benefits.
MI May Be Cancelable
Perhaps the most intriguing benefit you hear about mortgage insurance is that it may eventually cancel. This is only the case for borrower-paid MI (BPMI). Knowing that BPMI may be cancelable in 2-5 years (depending on your borrower’s LTV and other parameters) gives borrowers a peace of mind that they won’t need to pay for the MI forever.
MI cancelation is a tricky topic and there are many requirements borrowers need to meet based on the loan investor and servicer. However, the Homeowners Protection Act (HPA) of 1998 put into place baseline regulations around mortgage insurance cancelation. The law states that borrowers with MI on their loan may request to cancel their MI when their loan reaches 80% LTV or MI must cancel automatically when the loan reaches 78% LTV.
Here are some basics you need to know about the requirements that need to be met based on the HPA:
In situations where borrowers have BPMI, MI cancellation could result in lower monthly payments once the mortgage insurance drops off.
Understanding Mortgage Insurance Benefits for Your Borrower
Being able to concisely explain mortgage insurance benefits to your borrower will not only establish you as a reliable knowledge source for your borrowers but will also help your borrowers feel more confident in their choice. That combination will reinforce to them (and their real estate agents) that you’re a trustworthy and knowledgeable loan officer which will increase the likelihood that they’ll send referrals your way.
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