Mortgage Insurance Changes & Why This Doesn’t Affect VA Loans
There have been a lot of changes in the mortgage industry lately. Some of the most recent changes have been in the Mortgage Insurance (MI) industry. Private mortgage insurance is a type of insurance used by lenders to help limit losses in the event of loss or foreclosure of a loan. Lenders typically require MI for loans in which there is less than a 20% down payment (for purchases) or equity (for refinances). The mortgage insurance company will absorb losses up to a certain percentage of the value of the loan.
For example, if someone wants to buy a house and has a 10% down payment, a lender will provide a loan of up to 90% of the value of the home. Because there is less than a 20% down payment, the lender will require MI to cover losses equivalent to 25% of the loan amount. This insurance for the lender is a fee that borrowers pay monthly with their loan payment.
For those retired veterans, active duty officers or dual income families fortunate enough to afford a home beyond the limit, the VA provides a great Jumbo loan option. VA Jumbo financing is readily available for loan amounts up to $1 million with a small down payment. The down payment requirement is 25% of the difference between the purchase price and the maximum VA Loan amount at 100% financing (currently $783,750 for Oahu in 2009). So, here in Honolulu, a purchase price of $1 million, would require a down payment of just under $55,000. With a small seller credit and today’s amazingly low interest rates, you could purchase a million dollar dream home with little more than 5% to cover the down payment and closing costs.
When Congress officially passed the Servicemen’s Readjustment Act of 1944, one of the key elements in this bill was the creation of the VA Guaranteed Home Loan program. With this program, President Roosevelt & Congress wanted to make it as easy as possible for our soldiers returning home from World War II to become homeowners.
I remember when having above a 700 Fico (credit) score was superb. If you had a 720, you were in elite status and able to get the best loan rates around. Fast forward to 2008 - and a 720 Fico score no longer guarantees a borrower the lowest mortgage rates.
When it comes to insurance (auto, health, homeowners, etc.) they all have the same thing in common: it is never fun having to pay the premiums, but always a relief when the insurance company foots the bill. But what if you have to write the check to pay the premiums, yet you are not the one being insured?


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