MI Series Part 4: Single-Premium MI – the Unconventional Facilitator
My name is Steve Richman, and I’m That MI GuySM for Genworth Mortgage Insurance. Mortgage insurance isn’t exactly a mainstream topic, but it makes a mainstream impact by allowing borrowers to secure a mortgage without the traditionally required 20 percent down payment. Throughout this four-part series, (Part 3 here) I will use real-life testimonials to show you how this works, and hope that you can apply some of these tips to your own situation.
The following testimonial is from Jason Accola, Senior Mortgage Consultant, Wintrust Mortgage, based in Chicago:
When my borrowers have questions about mortgage insurance (MI), several themes come into their minds – the ability to purchase a home with a down payment of less than 20 percent; the ability to request to cancel their MI at 20 percent equity after meeting some requirements; MI’s tax deductibility feature, and so on. But one theme many may not think to ask about is the concept of borrower-paid single premium mortgage insurance.
Rather than having my borrowers pay for MI on a monthly basis, I’ve had a lot of success with using Single Premium MI instead. Since Single Premium is a one-time, lump sum, up front, at-the-settlement-table payment, it eliminates monthly MI payments by the borrower completely.
Here’s a great example. I recently helped a first-time homebuyer purchase a condo in downtown Chicago. The purchase price for the home was $216,000, the borrower barely had any money saved and was also on a tight budget. I was able to provide a single premium of $3,564, which was his total cost incurred—just over one percent of the total mortgage value. By doing so, he was able to avoid paying the MI every month.
The payment was much less expensive than he anticipated, as he originally didn’t think he’d be able to afford the condo. Let’s run through the numbers in more detail.
- Had he paid traditional monthly MI, the borrower would have paid over $97 per month in premiums. By using the single premium approach, we saved him about $80 per month.
- The borrower was also able to round up other forms of financing. He received $5,500 in the form of a seller contribution, and $12,545 from the city of Chicago’s Downpayment Assistance Program.
- Had the borrower kept the loan and made the regularly scheduled payments, he would have incurred a total out-of-pocket expense of nearly $11,664 over a 10-year period. Taking advantage of the single premium approach, he is now saving $8,100 over that period of time, and as long as he stays in the same home or same loan for 120 months, he saved money.
- He also took advantage of a Mortgage Credit Certificate.
Without mortgage insurance, he likely would not have qualified for the total housing payment or remain within his budget.
More broadly, I find that many of the customers I work with, a large portion of which are first-time homebuyers, think they cannot get into a home with less than 20 percent down. Not only can I get them into a home with less (currently $1,000 up to a $453,100 loan amount), I can use mortgage insurance in ways where they can really minimize their down payment and monthly payments while also leveraging government assistance programs that can make a major difference.
Steve’s Key Takeaways
Jason’s story illustrates just how many ways MI can help put a prospective buyer over the finish line and close on a deal. It also speaks to a broader theme—financial literacy can uncover resources and opportunities that aren’t immediately apparent. The government support that Jason’s buyer became eligible for, thanks to his use of Single Premium mortgage insurance, made a substantial difference in his required payments. But it takes two to tango—a well-researched, knowledgeable lender who is willing to leave no stone unturned, and an open-minded borrower who can leverage their good credit to maximize the home purchase opportunities available to them.
All that put together is advanced by the conventional and unconventional ways that MI can facilitate homeownership.