What is Mortgage insurance OR funding fee?

One lender told us the pmi was $500 to $600 for a ninety thousand home loan, the purchase price was one hundred thousand, and good idea to go ahead and pay it up front. Now on a eighty thousand loan amount, not purchase amount, another lender shows 2115 pmi. How many years do we have to pay pmi? Thanks.

Update:

So 2115 would be for a 10 year period? The mortgage is around 445 over 30 years. We were going to pay the 500-600 pmi up front on the 90000 loan but now on the 80000 loan we don't want to pay 2115 up front. These two lenders have different numbers for some curious reasons. We are trying to get the 90000 lender to give us in depth numbers based on 80000 so we can compare the two sets of numbers. Thanks.

Update 2:

We're putting 10% down. We calculate we may have to pay the 2115 over 13.5 years or about 13 per month. We'd rather pay 13 per month than 2115 up front. If it was 500-600 up front, we'd do that. Two bad a 90,000 lender has better terms than an 80,000 lender.

Update 3:

one loan is 80,000 and the other is 90000 and both are with 10% down. The 80K loan has pmi 2115, the 90K loan has pmi 500-600 but that latter number was over the phone whereas the 2115 was in writing.

6 Answers

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  • A.J.
    Lv 7
    5 months ago
    Favorite Answer

    PMI (Private Mortgage Insurance) is an insurance policy covering a payment to the lender if the borrower defaults on the loan. An FHA loan for first time borrowers is insured by the Federal government so PMI is not shown. If a home buyer has at least 20% equity in the home, he/she can challenge the requirement for PMI and also for an escrow account for property insurance and taxes. Some states have regulation about the percent equity to waive escrow accounts and mortgage insurance.

    If a bank forecloses and repossesses the home, PMI is about bank(lender) loss in reselling the home and cost to repossess. With 20% equity and 80% loan to value, the bank should not lose money in repossessing the home.

    PMI is 1/2% to 1% of the loan value per year. It can be part of the loan, or written separately. If part of the loan, the borrower should read the terms of when it gets dropped. If separate, it can generally be dropped when loan to value is under 78%.

    The PMI of 500 to 600 is probably only 1st year

    On a $90K 30 year 4.1% APR with $10,000 down payment, it takes about 70 months to pay down $10,000 more in principal unless paying more than minimum and directing payments towards principal.

    If a home goes up in value, it is also possible to either refinance the loan, or negotiate a drop of PMI or escrow account.

    An escrow account is for property taxes and home insurance. I preferred to pay them directly.

  • Eva
    Lv 4
    5 months ago

    PMI is due until you have at least 20% equity in the home. The second lender sounds a bit shady. If it's the same house with a $100k price tag and your loan is 80k, there shouldn't be PMI. Some government loans (FHA, etc) may require PMI for a longer time.

    • Glenn S
      Lv 7
      5 months agoReport

      With an FHA loan it doesn't matter how much money you put down as a down payment.....there will still be PMI (MIP) for the entire life of the loan.

  • 5 months ago

    You have to read the terms of the mortgage contract and ask your lender for clarification. Not all loans are the same.

    the traditional method of applying PMI is an added monthly fee on your payment, and it applies every month until you have about 20% equity.

    Some loans drop it automatically after a certain period of time, some loans allow you to pay for an appraisal and drop it if the appraisal proves that you have 20% equity, some loans require PMI for the life of the loan no matter what (FHA did this for a while), some loans force you to keep PMI for a minimum period of time then allow you to drop it with appraisal or maybe it drops off automatically, some loans allow you to pre-pay some or all of the PMI to get lower monthly fee or no monthly PMI at all.

    This is why you have to read your contract, there are a dozen or so ways it can be structured so we can only give generic advice that it usually applies whenever you have less than 20% equity, but we can't give you the specifics.

  • 5 months ago

    you pay until you have 20% equity....if you pay down the loan quicker, you can drop the PMI sooner...

    mine was about 40/month/

    I had an FHA loan and PMI was shown....

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  • 5 months ago

    It essentially protects the banks' interests. If you default on the loan, the insurance covers them. You pay that because you have a low down payment.

  • 5 months ago

    You pay PMI until the home is valued at more than 20% of the loan amount.

    The $2115 seems accurate.

    • A Hunch
      Lv 7
      5 months agoReport

      Thanks, I haven't had my coffee yet today. It seems awkward / wrong when I was writing it but the lack of coffee caused a foggy head.

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