Conventional Mortgages
When the loan to value for an owner–occupied residence is more than 80% (or the borrower is putting less than 20% down) then Private Mortgage Insurance (or PMI), is typically required. The premium may be paid on an annual, monthly or single premium plan. (The most popular method of payment is the monthly method). The premiums are based on the amount and terms of the loan and may vary according to the loan-to-value, type of loan, term of loan and the amount of coverage required by the lender. The less the borrower puts down the higher the premium. PMI may be waived when the loan reaches 80% or less of the value of the property.
VA Mortgages
A VA loan is guaranteed by the Veterans Administration (VA) and the lender is required to collect an up-front one-time fee at closing called the “Funding Fee”. This amount is between .50% and 3.00% of the loan amount depending upon the status of the Veteran and if the Veteran has used his VA Benefits previously to purchase a home.
There is no monthly premium and there is no refund of the Funding Fee when the loan–to-value is reduced below 80% or if the loan is paid off early.
FHA Mortgages
Regardless of the amount of the down payment, FHA requires a one time upfront fee of 1.75% of the loan amount, which may be financed in with the loan. In addition to the upfront fee there is a monthly premium. If the loan is paid in full within the first 7 years there may be a prorated refund of the upfront premium paid. The monthly mortgage insurance premium may not be waived regardless of the loan to value on a 30 year FHA mortgage.
