Q: Why is lender-paid mortgage insurance (versus buyer-paid) such a big topic?
CR: Whether it's a big topic or not depends on the customer. It's not something we do that often, but when we do, it can really help.
JJC: In some situations, it's the difference between a customer being able to get approval or not because of their debt-to-income ratio.
Q: Let's talk about those situations. What are the criteria for making this a good opportunity for your customer?
CR: Typically this is great for customers with a good credit score who don't have 20% to put down on their mortgage.
JJC: If they don't have 20%, then the mortgage will require mortgage insurance.
Q: How does the lender paying for the mortgage insurance affect the customer getting approval? Doesn't the customer end up paying for the insurance either way?
CR: Yes. If the customer pays the insurance, it's a monthly payment that figures into their debt-to-income ratio. If we pay it, we cover that cost by raising the interest rate just a fraction of a percent.
JJC: If a customer has 10% to put down, for instance, and they have a 43% debt ratio, if I have to add in the monthly cost of their mortgageinsurance payments, that's going to throw the ratio over and I can't get them approved. If we pay it, the increase in the interest rate might add a small amount to their monthly payment as opposed to a larger amount that includes monthly mortgage insurance.  Now we may get an approval.
Q: So it's ideal for lowering the monthly payments when that's key to getting the mortgage. Does it end up costing the customer more in the end?
JJC: That depends on how long you're going to be in the house.
CR: Exactly. It's especially ideal if you're going to be in a house for 3-5 years and are more concerned about lowering your monthly payments. I show the customers amortization schedules so they can see everything for a true comparison.