5% Down PMI Conventional Loan!
by Evan Vanderwey on 19/04/10 at 8:08 am
I was surprised today to receive an email from one of our lenders who works in the conventional lending area. This lender/servicer has been one of the few trustworthy lenders left offering PMI loans.
In the past 12 months some (my self included) have fallen prey to the whims of a not so aggressive PMI underwriter. Thinking we have a solid 10% down loan (always having an FHA loan approved behind it) we press forward only to find that our 800 credit score borrower is being declined simply because he’s putting down 10% in Michigan - which is considered by both Fannie Mae and Freddie Mac to be a “declining market”. Why would they advertise a program that they don’t intend to approve loans against? Frustrating!
Today, a ray of hope.
PMI stands for private mortgage insurance. This insurance is used to insure a portion of the banks loss in the event that a home owner lost the home. Private Mortgage Insurance insures the bank’s interest in the loan repayment down to an 80% loan. In other words, if you put only 10% down on a new home purchase, then you would need to carry PMI at some cost to you each month or up front in order for the bank to approve the loan. If you defaulted and lost the home, the PMI company would pay 10% of the loan to the bank and the bank would seek to collect the rest through a foreclosure and resale. Since AIG went down a couple of years ago, very few of the PMI companies would insure any loans in Michigan – just too risky – claims simply could not be contained.
Last year some opened up approvals for 10% down loans. Today, for the first time in almost three years, I have one that says they will go to 5% down.
Things seem to be moving in the right direction. PMI costs are greater the less you put down, but this could open the doors for some a little sooner and is good news regardless of the practical application.
So far, here is the deal: You must have reserve funds of two times the monthly payment on top of the required down payment and closing costs, you must have a 680 credit score and your ratio of debt payments to gross income may not exceed 41% (two years of income verification minimum).
Everything has to be basically perfect so don’t be surprised if they find a reason to decline the loan even if you meet the above criteria. It’s still a good policy to have an FHA loan approval waiting in the wings just in case.
