Richard's Real Estate Thoughts - Fairway Independent Mortgage Corporation NMLS #2289: Conventional loans: mortgage insurance

Conventional loans: mortgage insurance

Many home buyers ask about mortgage insurance and ways to avoid it. First it is important to recognize that mortgage insurance allows home buyers to purchase a home with low down payments and with low interest rates. Its cost is well justified by its benefit.

The best way to reduce the cost of mortgage insurance is to have a high credit score. For a 95% conventional mortgage, the monthly premium with buyer paid monthly mortgage insurance can more than triple for a buyer with a 660 credit score compared to a buyer with a 780 credit score. Such a difference can change the price range of a home that a buyer can purchase.

Mortgage insurance offers home buyers different payment plans. Basically the buyer can pay monthly premiums, or the premium can be paid up front with rate premium. Additionally these options can be combined, partial monthly and partial with rate premium. These different payment choices affect the monthly payment.

The payment option with rate credit is called Lender Paid Mortgage Insurance (LPMI). With this option, the interest rate of your mortgage is increased and rate premium is used to pay the mortgage insurance. The overall monthly payment is typically lower than the total payment with borrower paid monthly mortgage insurance.

The catch with LPMI is that your mortgage interest rate remains the same throughout the mortgage. With the borrower paid option, the monthly mortgage insurance premium can eventually be stopped, once the required loan to value ratio is reached.

Mortgage insurance helps many home buyers purchase a home with a low down payment. Even though the benefit of mortgage insurance is acknowledged, home buyers should make an informed decision as to which payment option best fits their circumstances.


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Richard Byron Smith
Mortgage Loan Officer
NMLS# 184479 TN# 104002 Georgia Residential Mortgage Licensee, GA#28928
Conventional, FHA, FHA 203k, HUD $100 down purchases, VA,
Rural Development (USDA), THDA and Jumbo Loans

Cell phone: 423-280-0345 Email:  Richard.Smith@FairwayMC.com
Branch Contact: Fairway Independent Mortgage Corporation,
2115 Stein Dr, Suite 215, Chattanooga, TN  37421
Office Phone: 423-280-0345  Office Email: richard.smith@fairwaymc.com

Mortgage Loan Officer helping home buyers in Tennessee and Georgia for over 20 years.

Fairway Independent Morgage Corporation
NMLS #2289
Chattanooga, TN

Equal Housing LenderNMLS

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This blog represents the opinions of Richard Smith. The posts and comments written on the blog do not represent the opinions or positions of Fairway Independent Mortgage Corporation.

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Comment balloon 1 commentRichard Byron Smith, NMLS #184479 • September 27 2016 07:54AM

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Good title for clicks..I am sure you will get a bunch of them!

Posted by Kristin Johnston - REALTOR®, Giving Back With Each Home Sold! (RE/MAX Realty Center ) almost 2 years ago

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