The mortgage industry is full of acronyms that often when listening to a mortgage professional you may wonder if they are speaking a foreign language. Here we break down some of the most common acronyms.
Typically required when a borrower puts down less than 20% on a property.
FHA mortgage insurance is often referred to as M.I.P. and typically requires an Upfront Mortgage Insurance Premium-a.k.a. UFMIP. Most borrowers elect to finance this into their loan amount as well as a monthly M.I.P. as part of their regular monthly payment. All FHA lending now requires a monthly M.I.P. for the life of the loan and cannot be removed regardless of loan to value.
Used on most conventional loans, a P.M.I. can be canceled. As part of the Homeowners Protection Act, the P.M.I. will automatically be dropped when the loan reaches 78% of the original value through amortization of its scheduled payments - typically around seven years. Some servicers will allow the borrower to cancel the M.I. after two years if they can prove 78% loan to value with an appraisal at the borrowers cost.
This premium can be paid as a one-time charge at closing, known as Single Premium, eliminating the monthly payment. It may also be paid through the traditional method as part of the normal monthly payment. Split Premium is second option in which a borrower may pay for a portion of the insurance up front and the remainder monthly. This provides flexibility when trying to meet debt ratio requirements or achieve a lower payment.
The lender pays for the mortgage insurance required. Typically the lender will offer a higher rate that will offset the cost of the mortgage insurance to the consumer and, in many cases, improve a borrower’s purchasing power by lowering the overall payment.
Call David Frank at 949-374-0421 for additional information on understanding mortgage insurance and the entire home loan application process.