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I am paying 25% down on an unconventional loan where my daughter, son in lay are buying a house that they are gonna live in I am not. My credit score is EXcellent above 800. I am told i have to buy this insurance in order to get the loan with a third party ownership. Is this True?

gmakerley · Posted: Tue Oct 27, 2009 8:20 am Post subject:

trisha, you say "unconventional" but that's not particularly expressive. what kind of loan is it? i assume it's not fha or va or usda, but some sort of hybrid...is it jumbo?

honestly, i have no awareness of anyone needing to obtain private mortgage insurance due to third party ownership. if this is a new wrinkle, perhaps someone can fill us in.

otherwise, can you provide a little more information about the sort of loan you are arranging here?

Guest

Unless there are some specific reasons for it attached to the particular "unconventional" loan, I've always understood pmi to to be necessary only up to 20% equity. This was part of the reason the industry saw a fair number of 80/20s written in the last few years. I'm far from an expert on the topic though, so absolutely CYA.

I'd look into this a bit more closely, Trisha. Maybe contact your state banking and/or insurance commission for clarification.

If the deal won't be allowed to go through w/o it then you may have to decide if it's worth it to pay the extra for the initial pmi policy and then cancel it after closing. OR look for another underwriter.

gmakerley · Posted: Tue Oct 27, 2009 9:24 am Post subject:

mike, in any event, i am certain that a borrower has no right to cancel such coverage. it's not like the borrower is able to go out and obtain the mi on her own. mortgage insurance companies work with the lenders.

i think your last suggestion is valuable - another lender may be able to help out without this lunacy.

Guest

Well now you got me curious, George... Wink

So I went looking for a bit... Came up with this from Wikipedia. As always - double and triple check sources of internet info...

"Lenders mortgage insurance"

"This type of insurance is usually only required if the downpayment is less than 20% of the sales price or appraised value (in other words, if the loan-to-value ratio (LTV) is 80% or more). Once the principal is reduced to 80% of value, the PMI is often no longer required. This can occur via the principal being paid down, via home value appreciation, or both. In the case of lender-paid MI, the term of the policy can vary based upon the type of coverage provide (either primary insurance, or some sort of pool insurance policy). Borrowers typically have no knowledge of any lender-paid MI, in fact most "No MI Required" loans actually have lender-paid MI, which is funded through a higher interest rate that the borrower pays."

Just from memory, once a borrower hits that 80% LTV mark, they can request that pmi be canceled.

jveenstra · Posted: Tue Oct 27, 2009 2:55 pm Post subject: PMI

Several years ago I saw a mortgage for invetsment property that required PMI with less than a 25% down payment. Never saw it before that or after that.
This is an investor purchase with a 20% down payment. It is possible it falls in a similar category. I do not think any of the 5 or 6 major PMI companies provide any PMI for any investment properties theses days

gmakerley · Posted: Wed Oct 28, 2009 7:53 am Post subject:

that might be right on, john. i know that getting mortgage insurance for any deal at all isn't a pleasant experience nowadays. mind you, i was an mi (contract) underwriter for 10 years. fortunately(?), my tenure in that spot ended before all this more recent foolishness hit the markets.

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PMI INS on Unconventional loans