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Here is a run down on Mortgage Insurance Options. Please note that sellers can pay all or part of a borrower’s up-front premium up to the maximum seller contributions allowable by Fannie Mae, Freddie Mac (conventional loans which require Private Mortgage Insurance) and FHA. VA loans do not require mortgage insurance but instead have a VA funding fee.

Borrower-Paid Mortgage Insurance

With borrower-paid mortgage insurance (BPMI), the borrower pays the MI premium, either monthly or as a single up-front premium. Single premiums may be financed into the loan or paid at closing and the seller can pay all or part of the premium as a part of the closing costs for the buyer.

Lender-Paid Mortgage Insurance

With Lender-paid mortgage insurance (LPMI), the lender pays the MI premium in the borrower's behalf, while charging a slightly higher interest rate on the loan. LPMI benefits borrowers by eliminating MI closing costs and monthly MI premiums.  Best for clients in higher income brackets for whom MI is not tax deductible*

Single Premium Mortgage Insurance (SPMI) or Single Financed Premium MI

SPMI—Borrowers can pay a one-time lump sum payment at closing (of which the seller can pay all or part) eliminating monthly mortgage insurance payments.  To reduce cash needed at closing, the Single Financed Premium (SFPMI) lets borrowers finance their MI into the loan amount.  Both options keep monthly payments lower than other types of mortgage insurance and help borrower qualify for the highest loan amounts.

Split Premium

By splitting the MI cost into an upfront premium and a smaller monthly renewal, a Split Premium reduces a borrower’s monthly MI payment, which can help them qualify for a larger loan.  Sellers can pay the entire upfront premium or just a portion of it if contract terms include seller paid closing costs/prepaids in buyers’ behalf.

 FHA Mortgage Insurance

FHA charges mortgage insurance in two parts (similar to SPMI above).  There is a lump sum up front payment (which can be financed into the loan—which happens on ~99% of all FHA loans– OR paid in cash at closing).  There is also an annual premium which is paid monthly.  While FHA mortgage insurance premiums have risen over the past 2 years to the point that they are generally more expensive than Private Mortgage Insurance options, FHA rates at lower credit scores are better than conventional rates.  The lower the credit score, the more attractive the FHA option tends to be.  Of course there are other reasons to finance with FHA: all funds can be from a gift, can have a family member co-borrower to qualify, will finance/insure someone with almost no credit history, etc.