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Find the Best Mortgage Insurance Premium Plan for You

A mortgage insurance premium plan is required to be made in order to get a loan from various companies. It is for the bank’s own protection. It markets the risk of mortgage insurance quotes between the lending company and the plan provider. Mortgage expenses may be deductible. In order to be eligible, the plan cover must be for house purchase debts on a first or second house. Home purchase debts are loans in the case of which profits are used to build or buy and improve your residence. Thus house loan plans on cash-out refinanced and help-home equity loans won’t be eligible for the reduction.

Mortgage insurance premium expenses paid during the year are reported on specific forms which are sent out by the lender. Prepaid expenses can be designated over the term of the loan or 84 months (whichever period is shorter) under a judgment from the IRS (Notice 2008-15). Home loan expenses are itemized tax reduction type of costs and are revealed on Routine a Line 13. This is a separate short-term tax. It is efficient for mortgage plans released on or after Jan 1, 2007. Home loan insurance is a protection plan type of cover that reimburses lenders due to different types of loans obtained by them. It is a financial guaranty for the lender. When you are purchasing a home with less than 20% down or refinancing to 80% more than your home value, you have to choose a property type of insurance. It makes the lender’s money safe.

Many individuals think that a mortgage insurance premium plan is needless. But it allows individuals to buy their first house this way. Highest possible individuals cannot provide the whole price of their house by themselves. Mortgage insurance quotes help them get the money from various loan companies. Generally, if you make a big down transaction and have a plan to pay down your mortgage quickly, you will be able to decrease the amount of money that you owe. Generally, house mortgage interest is in fact any interest you pay on a loan that you have decided to secure with your house (main house or a second home). The loan may be a home loan used to buy a house, a second home loan, a line of credit or a house loan. You can deduct the house mortgage’s interest if certain conditions are met. You need to become familiar with such various conditions and make sure you follow the necessary steps to make the plans according to them.

What is Premium Financing for Life Insurance?

Premium Financing for Life Insurance can allow you to have what amounts to basically free Life Insurance. Just how does this work?

The basic idea behind premium financing for Life Insurance is that a loan is made by a bank or other financial entity and the proceeds from the loan are used to pay the premiums on a Life Insurance Policy. The loan is repaid with the proceeds from the death benefit. The loan can be collateralized or not although the cost of the loan will be considerably lower if it is.

Most financial advisors view premium financing as be a good option for individuals who have a large amount of non-capital assets such as real estate. The non-capital property can be used as collateral for the loan. The loan can be used to purchase a large amount of insurance without the need for the client to use any capital for the payment of premiums. This is a good way to get assets that may not normally be available for investment purposes to produce a better return.

Premium financing is considered to be a better deal when bank interest rates are low. This is because what is actually happening is another type of wager on performance. The borrower is wagering that the performance of the Life Insurance Policy will exceed the interest rate of the loan. During periods of low interest this wager has a much better chance of succeeding.

Another factor that makes premium financing more attractive is a shorter expected lifetime. The shorter the term of the loan, the less the interest payments will be. It would not be as wise to use premium financing to purchase a policy for a 21 year old man with the idea of paying off the loan with the death benefit. The life expectancy of the young man would be 50 or 60 years and the interest would have to be paid for this entire period. On the other hand, it would make more sense to do it in the case of a 65 year old man.

There are quite a few different methods of premium financing. It would be impossible to discuss them all here. The basic idea remains the same from plan to plan. It is to borrow the money to pay the premium with the idea of repaying the loan with the proceeds of the Insurance. If you have a large amount of collateral that is not being fully utilized, you might be a good candidate for such a plan.

Loan Protection Insurance Guide

When it comes to loan protection insurance, there are a few things you should understand before deciding if it is right for you. You need to understand both how it works and what this type of coverage costs.

How Loan Protection Insurance Works

Loan Protection Insurance is a type of optional insurance. It will make a monthly payment for you, if you are unable to make your monthly payment on a loan due to a predetermined set of circumstances. These circumstances may include unemployment, sickness, or an accident that causes a temporary disability. In most cases, you must be employed for at least six months when you purchase this insurance coverage.

Loan Protection Insurance can be used on a car loan, a personal loan, credit cards, or another type of financial loan. There are many choices available, so shop around to find your best price. You do not have to purchase loan protection insurance from the same place you got your loan. It can be purchased as a separate policy.

Time Frame and Waiting Periods for Loan Protection Insurance

If you do lose your job, become ill, or are involved in an accident, your monthly payment will be made for you for a specified amount of time. Some policies will make your payments for 12 months, others for 24 months. This is all predetermined before you sign your policy papers.

For most insurers, there is a waiting period before the payments will start. Some companies require 30 days of continuous unemployment before they pay. Other companies will require you to wait 60-90 days after an accident or illness before they pay. This is all part of the terms and conditions of the policy and will affect your premium payment depending on the coverage you want.

The Cost of Loan Protection Insurance

The cost of this very specific type of coverage will depend on many factors. Some of these factors are:

-Your age
-The state you live in
-What type of policy you purchase
-What type of coverage you would like
-Your credit history

When getting quotes for Loan Protection Insurance, you will typically be asked if you would like an age-related policy or a standard policy. Age related policies usually have a lower monthly premium the younger you are and a higher premium the older you are. A standard policy is the same no matter what your age.

Most policies will charge a certain amount of cents per $100 of the loan. For example, if your loan is for $8,000 and the insurance company charges .15 cents per $100, your monthly premium would be $12.00 per month. Other policies will take a certain percentage of your loan amount and determine your monthly premium that way. The higher the loan payment is the higher the premium.

Your credit history and credit score may also have a bearing on your monthly premium. If you have had trouble making loan payments in the past or you have a low credit score, you monthly premium may be higher.

Other more flexible policies will offer a straight cash benefit paid directly to the policy holder to be used for any purpose they choose if they should become unemployed. This type of mortgage protection insurance is becoming increasingly popular as a way to safeguard against the possibility of an unforeseen lay off.

Loan Insurance – All You Need to Know

Most people are required to take a loan of some sort or the other, at various points of time in their lives. Most of them are also plagued with the fear of being unable to pay their monthly loan repayments due to some financial crunch. But now they don’t have to feel scared because they can make use of the loan insurance concept that is slowly catching up all over the globe.

Loan insurance is a kind of a protection insurance that you can undertake to safeguard yourself against inability to make monthly loan repayments. It is a form of payment protection insurance that you can undertake to help cover you when you are unable to make your loan repayment due to some kind of an illness or an accident. In most cases, this insurance is taken up to cover home loans, personal loans or even car loans.


In case of a personal problem or tragedy, you can be sure that your loan payments will be made, thanks to the insurance on loan coverage you have. People who suffer from sickness, loss of job, accident, death or any other kind of disability, leading to inability to pay the EMI’s on loans taken will benefit greatly from this kind of insurance. With your insurance taking care of your loan monthly repayment, you no longer have to be worried about the pressure being put on your family.

There is an option to undertake joint loan insurance by those who have taken up a joint loan application, giving you and your partner coverage at the same time. This scheme is very effective for partners as there is a constant reassurance that if either of the partner is taken ill or is involved in an accident or passes away, the repayments on the loan will be made on that person’s behalf.

Now the question arises on the types of loans that are covered under the loan insurance. In most cases, an insurance on loan is usually provided for borrowers of home loans. But certain banks are known to provide the insurance on auto loans as well as other personal loans.

Insurance Premium

Like any other kind of insurance, premiums are required to be paid in the case of this type of insurance as well. The amount of premium charged will differ from bank to bank. Very few banks even allow the insurance to be taken without the requirement of a premium to be paid.

The amounts of premiums that are charged on insurance for loans depend upon certain factors such as the age of the insurance holder, the amount of loan being insured, the medical record of the person taking the loan etc. The higher the person’s age, the higher will be the premium. Similarly, a higher loan amount being insured will lead to higher premiums being charged. Also, if the person’ medical records show a good status, a lower premium will be charged on the insurance. A serious ailment or a poor physical record will automatically rise up the premium amount.

FHA Mortgage Insurance Premium

FHA home loans are just that because you pay an FHA Mortgage Insurance Premium (MIP) to the Federal Housing Authority to insure the lender against loses they would take in the event that you defaulted on your promise to pay the loan back as dictated in the promissory note.

As of October 4th, 2010 changes are taken place regarding the FHA mortgage insurance premium and it will affect your monthly payment.

First lets start with a little education. If it were not for private mortgage insurance, VA or FHA, all traditional type of loans would require a minimum down payment of 20%. There are essentially four criteria a lender will look at in order to make a decision on whether or not to loan you money.

1. Your ability to pay – This is why they check your income sources and the likelihood of a continued stream of income.
2. Your willingness to pay – This is why they check your credit, to see if you pay your obligation on time and as agreed.
3. The collateral – This is why a lender will request an appraisal and in some cases an external home inspection. They want to ensure that they are basing their loan amount on the proper true value of the property.
4. The risk – How much risk do you burden and now much risk does the lender carry. This is where the down payment comes into play.

Let’s discuss the risk factor. The assumption is that the more “skin you have in the game” or, the more of your own money that is tied up in this property the more likely you are to do whatever it takes to make the payment so that the lender does not foreclose on the property.

This makes sense. Its one thing to have your life and all your belongings tied up in the house you live in but you add a whole new element if you have put $40,000 of your own money into the purchase of the home.

This is also why down payment requirements and interest rates are much higher for investment properties. If you were to lose your income and were faced with a decision, make my home payment or make my renters house payment it would probably take you a nanosecond to come to the right decision.

Not too long ago a 50% down payment was the going rate. With a strong US economy lenders slowly gravitated to a 20% down payment requirement. Simply put, lenders were comfortable knowing you would do whatever you needed to do to save your house and money.

However, the US Government has a strong initiative to prop up the housing industry and encourage home ownership. On top of that, simple statistics came into play and smart entrepreneurs put the numbers together to come up with yet another profitable insurance opportunity.

They figured, by spreading the risk among many, they could cover the down payment requirements, take the hit on the few, and make a nice profit.

Of course, the insurance companies did not want to have to come up with the 20% down payment, they would rather continue to have their money working and earning interest. The proposal was simple; if the lenders were willing to loan up to 95% the insurance company would cover the 15% if the lender were forced to repo the home (foreclosure).

This seemed like a win-win for the lenders, they could surely sell the home quickly at 80% of its value to remove it from the books. The insurance companies would win knowing that the foreclosure rate would be somewhere around 3%, the many would cover the few through monthly premiums.

And thus, Private Mortgage Insurance was born (PMI).

That is a very simple overview of how it works. If you were to apply for a traditional home loan (conventional financing) and put only 5% down you would be required to pay PMI to cover the lenders risk.

Because this is private the rates vary but you could expect to pay.85% annually of the loan amount prorated monthly. For example; on a $200,000 loan you would add about $141 to your monthly payment.

The more money you put down the lower this monthly rate would be. And, if your property appreciated in value, coupled with loan principal reduction, you could ask the premium to be lowered (of course you would have to pay for an appraisal to lower this monthly payment slightly, not worth it most of the time).

When using conventional financing there is no upfront payment only monthly.

Now, seeing this business model as one that would work, the Government saw a great opportunity to jump in and spring the home ownership initiative in fast forward.

So essentially, FHA home loans were born. They work in the much of the same manner as the private sector.

There are two major exceptions:

1. Because FHA is taking most of the risk they get to dictate the guidelines in which a borrower can be approved.
2. FHA charges an Up Front premium as well as a monthly premium. AND, the upfront portion can be financed into the loan amount.

So here is the skinny. In my opinion FHA home loans are the absolute best option for most first time home buyers. But it comes with a price (as all loans do).

As of October 4th, 2010 to borrow money from a lender insured by the FHA you will be required to pay…

A 1% Up Front mortgage insurance premium that can be added to the loan amount.

.9% or 90 basis points annually prorated for a monthly premium.

Example: The home you want to make an offer on has been negotiated to cost you $200,000. You are using FHA so you can keep your down payment requirement to the low 3.5% (10% if your credit score is between 500 – 570. Good luck getting any conventional financing with those scores).

* Down Payment – $7,000
* Loan Amount – $193,000
* Upfront MIP – $1,930
* New Loan Amount – $194,930
* Annual MIP – $1,754.37
* Prorated monthly – $146.20

The figure above that is most important to you is the $146.20 added to your payment each month. So when qualifying for a loan this must be added but you cannot add it until you know the loan amount (the chicken or the egg).

Yes, mortgage insurance can be expensive and is more expensive with FHA financing but look at the trade-offs. The big one is your low down payment requirement with FHA home loans. This allows you to keep more money in your pocket to help with moving expenses, furnishings or better yet, letting that money continue to earn interest.

Does “Partial Recourse” Premium Finance Give A Senior Any Real Financial Exposure?

In order to determine whether or not partial recourse premium financing gives a senior any real exposure, there are some terms that you need to become familiar with. The first term, of course, is “partial recourse.” Partial recourse is a clause that is included in the sales contract between the lender and the senior (the borrower) that stipulates that if the borrower defaults on the loan, the borrower is responsible for the repayment of a percentage amount, usually 25% of the loan immediately, including the cost incurred by any problems between the buyer or investor who may be in current possession of the loan. You see, lenders commonly sell loans to investors. The lender wants to be sure that a default on the loan does not leave them or their investors without the money that was lent, so they include this clause that compensates them with an agreed-upon portion of the losses. In short, partial recourse is the course of action taken against the borrower if the borrower somehow defaults on the loan. In this case that would be the loan that they are using for their premium finance life insurance policy, and the risk of default is close to zero.

The second term to be familiar with is “financial exposure.” Financial exposure is the amount of money that you leave yourself exposed to loss. Seniors looking to get life insurance want to minimize the financial exposure that their loved ones will be faced with at the time of death. Insurance minimizes the negative effects of financial exposure by taking away a percentage of that exposure in the form of reimbursing funds through the payout of insurance policies. Your financial exposure describes the amount that you stand to lose in the case of an unpredictable event. Ideally, people are looking for as much coverage for their financial exposure as possible with as small of a deductible and premium payment as possible. Generally speaking however, the more exposure you protect yourself against, the more you will have to pay in premiums or deductibles.

Now that the terms have been explained it is easier to answer the question of “Does partial recourse give a senior any real financial exposure?” The answer in almost all cases is: “No.” If a senior dies during the first two years of the policy, the proceeds from the policy go first to pay back the loan, and then the bulk of the policy is distributed to beneficiaries.

At the two-year point, the senior can choose to keep the policy by repaying the loan. If the senior’s health has deteriorated to the point that he or she could not qualify for a replacement policy, this may be an attractive option. However, whether or not the funds are available depends on the individual financial circumstances of the borrower of the loan. If the borrower has the funds to pay back a loan in full and then make the regular premium payments, there is no need to worry about partial recourse because the likelihood of default on the loan is low. If there are no defaults on the loan than there is no financial exposure to the negative effects that can result from borrowing what cannot be repaid. Furthermore, those who are applying for premium finance life insurance must have at least two million dollars in insurable assets to apply for the minimum two million dollar policy. If they have their finances in order, not only will they have obtained a loan with terms that they can live with, but they will also have the funds to pay off the loan if there was some reason to keep the policy, or in the unlikely event that the partial recourse clause of the agreement were to take effect.

Seniors without the financial ability to repay the premium finance loan can sell their policy in the secondary market for enough money to pay back the loan and generate a substantial sum for themselves or their beneficiaries.

So the real financial exposure risk in partial recourse financing is very small. If the senior borrowing can liquidate or come up with the assets that would be required in order to pay the loan for the premium policy back in full, it is zero. If the policy is sold to repay the loan, the real financial exposure also is zero. Only in the case of a senior who wants to keep the policy, but does not have the means to repay the loan, would there be a problem. But rather than let the loan default, the senior would give up their desire to keep the policy and sell it.

Understanding Life Insurance Premium Financing

Life insurance premium financing is a complex concept of life insurance formed to let affluent people acquire enormous amounts of policy while settling some of the costs of the policy at the same time. Premium financing will be possible if there will be collaboration of at least two financial institutions. The policy holder must be old enough for the premium financing agreement to be fit for this sort of arrangement. This arrangement usually requires that the individual should be older than age 70 but younger than age 84. In addition, the insured should be in good health to get a life insurance and must also have a net worth of at least $5 million.

The Loan

Premium financing entails pulling out a loan to obtain life insurance. These sorts of loans can be considered as special loans with small interest rates that are merely obtainable through premium financing. They can also be a non-recourse loans that are protected by the insurance policy itself. When we say non-recourse loan, it means that the loan is secured by the death benefit of the insurance policy. Even if the policy holder fails to make payments for the loan, the bank is assured to get its money back.

The Life Insurance Policy

An insurance policy is an element of a premium financing arrangement. The insurance policy acquired is typically utilized as a component of a charitable gift but can be employed for variety of purposes. The cash values of the policy are generally not accessible on hand to the policy holder since it is secured by the premium finance loan.


The primary advantage of engaging in premium finance arrangement is that a wealthy individual can hand down millions of dollars to its beneficiaries while reducing the cost incurred from the premiums. On the contrary, the loan payments can be obtained from the interest of the present investments. Given that payments do not depend mainly on age or health and the loan is guarded by the insurance policy, the bank is able to charge minimal interest rates to make it become more affordable than premium payments would cost.

Other Concerns
When acquiring a premium financed life insurance policy you need to consider the fact that you are getting a loan to obtain an insurance policy. Always remember that even if you are not making premium payments, you should still make loan payments. Therefore, it is necessary that you can afford to pay your loans from the bank. Moreover, banks usually offer these types of loans to people with high net worth because they have the needed assets that are required to substantiate such large amount of loans and have collateral to protect the interest of the bank.


Life Insurance Premium Financing

Life insurance premium financing is used by wealthy individuals to pay their life insurance premiums. By financing your premiums, it allows you to free up the funds that might have otherwise been used to pay your premium. Many wealthy people require a substantial amount of life insurance for business planning, estate planning, or for income replacement.

In order to qualify for life insurance premium financing most insurance companies require you have a minimum of $2.5 million in net worth and at least a $200,000.00 a year income. In addition, you must be bankrupt remote entity, such as a Limited Liability Corporation, or an Irrevocable Life Insurance Trust.

In a normal premium financing arrangement, you would apply for a policy at the same time you apply for a loan. The loan is usually arranged by the insurance company you are working with although there are many different companies that handle only the financing and do not deal with the actual insurance policy. While you are being medically underwritten for the life insurance policy, your loan is being processed. Assuming you pass the medical exam and qualify for the loan, the policy and financing are put into place at the same time.

The benefits of a premium financing arrangement is that it frees up business and personal money to be used more efficiently in other investment arenas. In addition, life insurance premium financing may minimize gift taxes, and can provide a greater rate of return on the death benefit paid through regular non-financed methods.

Life insurance premium financing loans may be repaid either by paying a monthly payment while you are alive, pay from the policy itself, or at the time of your death, proceeds from the policy will pay off the loan.

Interest on the life insurance premium financing loan is considered to be personal interest, and therefore, not tax deductible.

If you are considering a premium financing loan for estate planning, there are some tax issues you may want to consider. The life insurance proceeds will be included in your estate if you own the policy. If the life insurance policy is owned by an irrevocable life insurance trust, estate taxes on the death benefits may be avoided.

Before you consider financing your life insurance premiums you should be aware that the life insurance policy will have to earn returns of between 150 to 300 basis points over the interest rate of the loan.

In addition, you should ask what the loan commitment fee is, as well as knowing whether the life insurance premium financing loan is renewable, how long the term of the loan is, and if the loan extends well beyond your life expectancy.

You may want to find out if the loan requires a personal guarantee, or if the loan is guaranteed by the life insurance policy.

Also, you want to know how if the program is designed on your IRS calculated life expectancy or is it conventional. If the loan is based on your life expectancy, and you live beyond that, the loan amount will exceed the cash value and the whole program will come apart.

Before entering into a financing agreement you may want to consult a trusted attorney, your financial advisor, and/or your Certified Public Accountant.

You will also want to shop around and compare insurance companies, their individual plans, the premium amounts, and the different types and amount of life insurance available to you.

Is an FHA Loan Right For Me?

Government sponsored loan programs, such as FHA loans, have been getting a lot of press lately. But, how does an FHA loan differ from a conventional loan? What are the advantages of each?


The Federal Housing Authority (FHA) was created in 1934 to help potential homeowners gain access to money to boost homeownership rates throughout the United States. FHA loan programs require very little money down on a new purchase (usually only 3% of the purchase price) and will lend up to 95% of the value of a home on a cash out refinance. This high loan-to-value ratio is the primary appeal of an FHA transaction.

The FHA is not a lender and does not actually make or guarantee home loans. They insure the loans an online mortgage lender can assist you in obtaining.

FHA currently only offers three loan programs:

30 year fixed

15 year fixed

5 year fixed ARM

FHA Mortgage Insurance Premiums (MIP)

Every FHA loan requires Mortgage Insurance Premiums (MIP) regardless of the down payment amount or loan to value. In addition, FHA loans require Up-front Mortgage Insurance Premiums (UFMIP). The UFMIP can be financed into the loan.

Up-front Mortgage Insurance Premium (UFMIP)

UFMIP is calculated at 1.50% of the base loan amount on all loans, regardless of the down payment amount. This insurance protects the lender against losses in the event that the borrower defaults on the loan.

**The entire amount of the UFMIP can be financed into the loan amount!**

For example:

If the FHA loan amount is $100,000 (base loan amount)
The mortgage insurance premium would be $1,500 ($100,000 x 1.50%)
The mortgage amount including MIP would be $101,500 ($100,000 + $1,500)

What really happens during an FHA mortgage transaction is that the borrower owes FHA a lump sum mortgage insurance premium. The lender making the FHA loan will actually lend the money for the premium to the borrower and send the money to FHA so that the mortgage will be insured.

Monthly Mortgage Insurance Premium

In addition to the UFMIP, there may be a monthly premium due as well. The monthly premium is .50% of the base loan amount.

On a 30 year fixed loan, the monthly payment would be calculated as follows:

$100,000 x .50% = $500.00 / 12 months = $41.67 per month

Maximum Loan Amount

FHA also has maximum loan amount restrictions that differ from county to county. Go to to view the maximum loan amount in your area.

Conventional loans

There are two types of conventional loans: conforming and jumbo.

Conforming loans

A conforming loan requires a loan amount of $417,000 or less. Conforming loans offer a larger variety of loan programs than FHA with a wide array of lending options. A conforming loan generally requires a larger down payment for a purchase (usually at least 5%) and has more restrictive guidelines on getting cash out of the property for a refinance.

The big advantage of conforming loans is that they do not require Private Mortgage Insurance (PMI) if the loan amount of the new first mortgage is 80% or less of the value of the home. The elimination of PMI can offer a significant savings over the life of the loan.

Additionally, conforming loans offer interest only options. FHA currently does not allow interest only payments.

The Economic Stimulus Act of 2008 temporarily expanded the conforming loan limits through 12/31/2008 to as high as $729,750 in an attempt to shore up the slumping housing market. The new conforming loan limits are based on 125% of a city’s median home price. Go to to find the temporary conforming loan limit in your area.

Jumbo loans

A jumbo loan is any loan amount over $417,000. Jumbo loans generally have slightly tighter lending standards and may require an additional down payment of at least 10% of the purchase price. Jumbo loan programs are as diverse as conforming loan programs and also do not require PMI if the loan amount is less than 80% of the value of the home.


So, to summarize, it is really all about loan-to-value. If you plan on putting down a small down payment, than an FHA loan is most likely your best bet. But, if you are putting down a larger down payment, a conventional loan may be the way to go.

Primer on the Difference Between an FHA Loan and a Regular “Conventional” Mortgage Loan

It is in every borrower’s best interest to understand the difference between a Conventional and an FHA loan, especially if they owe more than 80% of their home’s value or are interested in purchasing a home with less than 20% down payment.

First FHA will allow a borrower who wants to refinance, or purchase a home, the opportunity to borrow up to 96.5% of their home’s value. This is also known as LTV or the “loan to value” ratio. If it is a refinance, and they want to borrow 96.5% LTV, then the borrowers are not allowed to take out any cash. The only refinance that will be accepted is one where the borrower benefits with a reduced monthly payment from a lower interest rate.

A borrower can work with a Conventional loan if they only have to borrow 95% or less LTV. It’s usually financially better to secure a Conventional loan than an FHA loan because of the 1.75% up front fee that FHA requires. This can be a significant extra fee if the loan amount is three or four hundred thousand dollars. For example, the extra fee on $300,000 is actually $5,250.

So if you have at least a 5% down payment on a purchase, or have at least 5% equity in your home when you are ready to refinance, you might qualify for a Conventional loan and forgo the 1.75% up front fee. If you can afford a 10% down payment, or have 10% in equity when you are ready to refinance, you have an even better chance of securing a Conventional loan. This is because there are several restrictions on Conventional loans between 90% and 95% LTV and many borrowers will not be strong enough financially to qualify. For example, the credit score must be exceptional (over 720 points) to get a loan over 90% LTV.

One advantage to an FHA loan is the cost of their Mortgage Insurance Program. Mortgage Insurance is an extra fee that must be paid alongside the regular monthly Mortgage Payment. Regardless if it is a Conventional or FHA loan, anytime a borrower needs a loan that is over 80%, they will be required to add a Mortgage Insurance Premium to their monthly payment.

FHA’s mortgage premium is a standard .50% of the loan amount. In other words it does not matter if you borrow 81% or 94%, if you borrow over 80%, the Mortgage Insurance Premium would be the same at .5%. A .50% Mortgage Insurance premium on $200,000 would be $200,000 x .50%, which equals $1,000. This is an annual premium and so it needs to be divided by 12. Therefore, the Mortgage Insurance Premium on an FHA $200,000 loan would cost an extra $83.33 per month ($1,000 divided by 12 = $83.33).

With a conventional loan there are different percentages associated with different LTV’s. For example a borrower who needs a loan that is over 80% but under 85% LTV will have a smaller Mortgage Insurance Premium than someone who needs to borrow 90% or 95%.

The Mortgage Insurance Premium payment under 85% LTV is about the same as the FHA premium, but the Mortgage Insurance Premium (also known as MIP) on a 90% or 95% LTV loan is much higher than FHA. So where as the FHA loan asks for a large upfront fee of 1.75% and a smaller monthly Mortgage Insurance Premium, the Conventional lender does not ask for an upfront fee, but collects a larger Mortgage Insurance Premium during the life of the loan. A good loan officer can crunch the numbers and figure out which type of loan is in your best interest.

I hope that this explanation clarifies the differences between the two loans and shows the advantages and disadvantages of each type.

My name is Allen Sayble and I have been a loan officer since 2001. I specialize in hard to find loans through FHA and USDA for borrowers with less than stellar credit, or who want to borrow over 80% of their home’s value. I also enjoy helping borrowers in a sound financial position. You have worked hard to keep your credit strong and keep your financial ship moving in the right direction. In return, I will work hard to get you the best interest rates the industry has to offer.


How Does a Loan Officer Get Paid and What are Points

You hear the commercials everyday on the radio. You see the billboards along the highway. ‘No Points,’ ‘No Closing Costs.’

The mortgage industry has become extremely competitive in recent years, with literally tens of thousands of licensed brokers in California alone. How did it get this way? In recent years with interest rates at record lows it was an easy way for even inexperienced people to make a ton of money with little training, and no experience. The calls to refinance came pouring in. If you could answer the phone you could make good money in the real estate lending business.

I’m not trying to slander real estate professionals. Most are very good at what they do. It is simply that in any field as over crowded as this one has become you will find those who will bend the truth, who will forget to mention certain things, prevaricate or outright lie to get your business.

Let’s set the record straight, shall we? Nobody does this for free. I myself have seven children and a beautiful wife to support. I need to get paid. For my pay I provide a quality service. Most of us in this industry work on commission; the funny thing is I get to set my own commission on each and every loan, by charging ‘points.’

You may have heard the term ‘points.’ What is a point? Simply this, a point is one percent of the loan amount. It’s called origination, or points. If I charge 3 three points on a $100,000 loan it equals $3000. I get to decide how many points I’m going to charge. The law in most states limits the number of points I can charge. To go beyond that is usury, and simply not allowed. That limit is as high as 6% in California or even higher in some states. I myself very seldom charge more than three points. I also seldom charge less than three points. The number of points being charged is disclosed along with all other closing costs on the Good Faith Estimate or GFE.

A word on GFEs, they are an estimate, and some less scrupulous lenders really make the most of that fact. When I do one I try to be as close to actual costs as possible or even a little high. Sometimes things as simple as the day the loan closes or the amount a notary will charge can affect the actual amounts. On every loan I do I build in a pad of $250. The reason is simple. I estimate everything on the high side of reasonable and put in the pad, because I’ve never had a client complain that they got $31,000 at closing instead of the $30,000 they asked for. Now imagine you needed to refinance and take $30,000 cash out, and I delivered on $28,712 instead of the $30,000 you needed.

Make sure your loan professional discloses ALL fees and not just his own. Often they will show you only the fees that broker is charging and not put in the title insurance fee, or the escrow fee, or any other third party fees. Ask, “Are these all the fees I’ll pay?” If the answer is “No,” run don’t walk to an honest loan officer.

Typically the only part the loan officer gets paid on is the origination. Of that they will usually get a split with the broker. I’ve seen splits that range from a flat $500, to anything from 25% to 85%. The broker in most places makes their money from the other fees. Application fees, processing fees, admin fees, tax service fee, underwriting fee, wire transfer fee, and more. Some are legitimate some are merely padding the price of the loan.

Points are not the only way we get paid. We also can get a rebate from the lender. Let’s say I went to a lender with your file and they quote me an interest rate of 6.5%. I turn around and tell you I can get you 7%. For this I receive a one-point rebate from the lender. While at first glance this may seem sneaky and dishonest, remember I’m getting a wholesale rate. If you went there direct you would not receive the 6.5% rate. They offer it to me with room for me to make a profit. Some lenders will limit how much I can raise the rate from what they offer me.

The base rate that they offer is called ‘par.’ Those of you who are golfers will understand the term. It means basically the base rate. Even. No adjustment up or down. That rate can go up for a rebate, or it can go down, IF you buy it down. Often when doing this you are only buying it down for a specific period so beware.

These are the biggest two ways to get paid but there are others. Let’s say you took out a ‘Pay-Option-Arm’ or ‘Pick-A-Pay’ type loan. This loan comes with the opportunity to choose one of four payment options each and every month for five years. You might choose to make a 15-year, or 30 year fully amortized payment. You could also choose interest only, or even a minimum payment based on 1% interest, with the rest of the true rate tacked onto the backside of your loan. Fully discussing this loan is a subject for another article, but suffice it to say this loan can be perfect or a disaster and you’d better understand the ups and the downs of it from the beginning.

On this type of loan all kinds of promises are made. “I can do it for Zero points! One point! 1.5 points!” Whatever.

The reason is the high backend rebate. It may not be charged to you directly but your still paying for it.

The rebates on this can be as high as 3.4 points. Selling you on a three-year prepayment penalty does that. It also means a higher fully indexed interest rate. If you’re getting into this loan for the 1% payment only, then maybe you don’t care. If your real estate market is going up faster than the loan amount is climbing, maybe you don’t care. If you are getting into this type of loan, make sure you’re asking about the rebate. If you are being charged points up front and the loan officer is getting a high backend rebate he’s ripping you off. One or the other, or a reasonable combination of both. One point up front combined with a 2.5-point rebate is reasonable. It makes the total commission 3.5 points. Two and a half up front and 1.75, for a total of 4.25 is a little high, in most cases. Sometimes the amount of work involved justifies the extra pay. As a general rule I think three points is fair to all concerned.

How do you know what your loan officer is making on the back? It is disclosed, but you need to know what you are looking at. It’s called ‘yield spread premium’ or YSP. Be careful of this though. Just because you don’t see it does not mean it’s not there. When your loan officer is selling you a loan from his own company, he does not need to disclose the YSP. The YSP is what the ‘broker’ charges over what the lender offers. If dealing direct with the lender there is no YSP. Even if the loan officer can get you that 6.5% and sells you the 7% instead, because he woks for the lender there is no YSP. Ask if he is a broker or direct lender. As with almost anything either can be sold well.

If he’s a direct lender he’ll say things like “Our money, our rules.” Or “we can control it all because we don’t have to play by the other guys rules.”

If he’s a broker he’ll say “I deal with 30, 50, 200 lenders so I’ll get you the best deal.”

Reality is that while where I work we’re approved with over 50 different lenders I’ll price a loan with no more than half a dozen and usually I know before I begin who will get the deal. Each loan is different and one of the reasons I get paid is to know who does this kind of loan. Is it ‘A’ paper or sub-prime? Is it a single-family residence, or a condo? Is it investment property of primary residence? Do we need to do a stated income loan or full doc?

I get paid for my expertise. I get paid because I not only take your loan to the guy with the best interest rate but also to the guy will get it done quickly and efficiently. If for example you were borrowing $200,000 at 7.25% your monthly payment would be $1364.35. What if you turned down the guy who told you he could get it at 7.5% even though you thought he was the more qualified? You’re chasing the rate. How much did that save you? At 7.5% that same $200,000 costs you $1398.61 per month. The difference is only $34.26 per month. Now let’s say you go with the cheaper guy. He came in cheapest because he was chasing your business. When you don’t know what you’re doing the only way to compete is to try to undercut the other guy on price.

For $34 a month you get a guy who maybe can’t even get it done. The lender has poor service so the loan doesn’t close on time and someone else buys your dream house.

For $34 a month I’ll take your loan to someone who will make it happen smoothly and quickly.

As with anything you get what you pay for. Quality service costs a little more. Beware of the guys who are either too cheap or too costly. Either is a sign to beware of.

Too cheap and they are chasing your business because they really need it. Maybe they are very good and just really want to give you, a total stranger the deal of the century. Possibly they are that good and just in a slump. It happens.

Too expensive and they are gouging you. Trying to make all their money off this one loan.

If they are in the business for the long term, they’ll want to build a relationship of trust with you. I want all my clients to come back again and again. Ideally I’ll help them into their first house. Refinance it for them so they can improve on it, and then help them buy a bigger and better house when they start growing their family. Maybe we’ll refinance it to pay off the kid’s college loans. Then when the last kid is safely on his own, I’ll help them downsize into a beautiful condo by the beach.

This kind of relationship only happens when there is trust going both ways. That trust is only built by providing quality service and sound advice.

Your home is typically the single largest investment of your life. Don’t trust it to just anyone. Make sure you understand how much you’re being charged and why. Pay for expertise. Pay for honesty and integrity. Don’t pay for inexperience or to pad a greedy loan officer’s already overstuffed pockets.

Steve and Stacie Scheunemann husband and real estate professionals with five years experience.

Stacie has been an educator, small business owner, and professional organizer.

She is a Nutritional Herbalist who keeps her family and friends healthy and eating well. Hers is the strong will and relentless drive for perfection that makes the team what it is.

Steve is a Marine veteran who served in the Gulf War and Somalia, as a helicopter crewchief. After the Marines he followed in his father and grandfather’s footsteps and became a police officer. As a police officer he received many letters of commendation from the department and the community.

He’s been a Technical Instructor in the telecom field and even worked as a cowboy on a Texas cattle ranch.

Both are active in the community, volunteering time for the Cub Scouts and fire department with their ‘Fill the Boot’ Campaign getting all seven kids into the act collecting donations outside a local mall side-by-side with the firemen.

Choices For Buying Loan Protection Insurance

It is important to realise that you do have options for buying loan protection insurance and to know about the differences. The vast majority of policies are sold alongside the loan when taking it out, however you can also choose to buy a policy at a later date after taking the loan. By choosing to shop for a protection policy yourself you can make around 80% savings on the cost of the premiums.

Loan protection insurance is a policy that is taken out to insure against the fact that you might lose your income. A loss of income can come about due to you suffering an accident or an illness which meant you were unable to work. A policy would also include you being made unemployed through reasons not of your own such as redundancy. The cover would payout an income that was tax-free which would allow you the luxury of being able to continue meeting your loan/credit card repayments using the money you insured for when taking out the policy.

If you were to lose your income and have substantial loan or credit card repayments to make then life could become an uphill struggle if you wanted to remain debt free. It is important to keep out of debt as at the very least you would see your credit rating destroyed. If this happens then for sometime in the future you could have many problems obtaining credit of any kind and a bad credit file can take a long time to repair. In the worst cases of debt the lender could take you to court and this means that you could have a County Court Judgement against you and have bailiffs come into your home to take your possession to sell to recover what you owe. For a small premium you can guard against any of this happening by keeping up with your mortgage repayments as though you were still working.

If you have the protection added into the cost of the loan then the lender could add interest on top of it and this could almost double the cost of the borrowing. Another downside to taking out protection this way is that often little information is given regarding exclusions and the other terms and conditions of the policy.

Taking out the protection with a standalone provider you will be given access to all the information on their website which would allow you to ensure a policy would be suitable. When choosing a policy there are many things that need taking onto account besides the exclusions, you need to know if cover would be backdated and when and for how long it would payout. All of these can differ with independent payment protection specialists.

Some providers offer a loan protection insurance policy with the conditions that you wait for the 30th day before claiming. With others it could be as long as the 90th day. Some will continue paying out for 12 months and with other providers payment could last for 24 months.

FICO, Credit Cards, And Home Loans What Do They Have To Do With Me?

#1. – OPEN ACCOUNTS! – I have worked with several people that either had a Bankruptcy or got in trouble with credit cards and canceled them all. They use cash only now, thinking that is the best way to go. Well that is a great way to do things. However not if your trying to get a home loan or any other type of loan. In fact sometimes people don’t even generate a FICO score because they don’t have any credit at all! Thats bad news. You need three active credit accounts, preferably for one year to help your cause. “That means I have to use credit cards again? In the past they ruined me!” Well yea thats pretty much what it means. But lets understand how credit cards and loans effect your FICO score. First of all a FICO score doesn’t look at your job or how much money you make. You could have no debt and a $100,000.00 a year job but if you dont have active accounts, your FICO score may still be low. That means higher interest rates on loans. Here is what you can expect in terms of interest rates in relation to what your FICO score is:

  • FICO score:– APR:
  • 760-850—– 5.918%
  • 700-759—– 6.140%
  • 660-699—– 6.424%
  • 620-659—– 7.234%
  • 580-619—– 8.777%
  • 500-579—– 9.670%

Many people aren’t aware that you cant really negotiate the rate much with lenders. That FICO score indicates your risk factor. You may know you can pay your loan but they don’t. When they see a 500 credit score they think there is a huge risk you will default on your loan, so they give you the interest rate that makes them the most amount of money in the shortest amount of time. Don’t think the lenders actually care about you or your circumstances they don’t, they care about money, thats it, thats the bottom line. They see your score and offer you that high risk rate loan. No matter how good a loan officer/Broker is they cant get a 6% interest rate for someone with a 550 score. It doesn’t matter how long you shop around. They can however lower their fees for you, give you great service, give you a no Yield Spread Premium loan, etc. Thats why its good to shop around for loan officers and find someone who honestly cares about you, your goals, and your money. I like to treat everyones loan who comes to me as if it were my own. Any way back to credit cards and how they help. OK so you have a credit card with a $1,000.00 limit. If you carry a balance of $850 on it you will actually hurt your credit score. You see FICO wants to see how you manage your money and bases a score on that. If it thinks you aren’t managing your money wisely then you get a lower score. If however you are carrying a balance of around 30% and making your payments on time every month that will help your credit score, looks like your managing your money well. Now it doesn’t make a difference if you have a credit limit of $300 or a Platinum $10,000 limit card it works the same way. So if you’ve had problems in the past with credit cards my suggestion is use them for small things like gas and make sure you have the money to pay them off. Remember Credit Cards are basically LOANS NOT cash! You have to pay them back and sometimes at substantial interest. Please don’t ever think of credit cards as cash. Credit cards help your FICO score by showing that you can manage your money responsibly and pay your debts on time. Your score gets higher as you continue to pay every month for years. Which will help you get a higher score a lower risk factor with the lenders and a better interest rate saving you $1,000s and $1,000.00s of dollars.

#2.- NEVER GO OVER 30 DAYS LATE ON ANYTHING! – Many people want to refinance their homes because they have gone 1,2,3 or even more months late on their mortgage. They have a 7% interest rate and suppose they can refinance at the same and take some cash out as well. If you have gone even once 30 days past due on a mortgage that is a killer to your FICO score. It causes it to just tank! So once that happens your going to end up in the High Risk score column. Your account moves to the “unsatisfactory” column on your credit report and Your refinance loan may be 9% or more and you may not even get financing. Remember the lenders just want to make money. What do you think they see when someone is 3 months past due on their current mortgage at 7% and they can only offer them a 10% loan at $300 more per month. They see default. If you think you might be short of money and before you go 30 days past due try to get refinancing then! Don’t wait till its too late because your going to be stuck with this high interest loan until you can clean up your credit report and your score goes up. That could take 1, 2, or even 3 years or more! Don’t ever go 30 days late on your credit cards! You may get charged a fee, and your interest may go sky high after you accidentally pay 10 days late, but, if you don’t go 30 days or more it wont go on your credit report. 30 DAYS LATE=TANKING FICO SCORE. Remember that.

#3.- CHECK YOUR CREDIT REPORT – Get a copy of your credit report so you can see if there are any inaccuracies on it. Most people actually have one or two inaccuracies on their report. You may have old collection accounts that should be removed. These should be looked at carefully and then disputed with the credit agencies. There are 3 credit reporting agencies. EQUIFAX, EXPERIAN (formerly trw) and TRANS UNION. You will need to order a copy from each and dispute each individually they are separate companies. You should try to do this BEFORE talking with your loan officer/Broker/Lender. Your score can go up significantly in 30 days or less by removing inaccurate information. It could be the difference in a 9.75% loan and a 6.9% loan. You cant take that chance. ORDER, REVIEW, DISPUTE!

Your Loan Repayment Can Be Protected With Loan Payment Protection

When you take on a loan no matter what happens you have to be able to carry on meeting the monthly repayments. Your lender will not let your repayments slide if you should lose your income and be unable to meet your repayments. While your lender might be willing to make an agreement with you in the short term, if you remained out of work for many months then you could be facing problems. Loan payment protection can give you an income to replace your own if you are made redundant. It can also provide for you, should you have to take time off from work due to becoming ill or if you were to have an accident.

The cheapest way to take out valuable loan payment cover is by going online and choosing to buy it independently. By searching and buying your policy this way you are able to get the information necessary to make sure cover is suitable. You will also be able to compare not only for the cheapest premiums, but also when the cover would start and for how long it would payout. These dates vary with the provider as does the premium. Loan cover can be taken with your loan from the high street lender and in some cases lenders are known to add on the cover without asking.

If protection is added on this way then you could quite possibly see your borrowing double. This is due to the protection being added onto the borrowing and then the interest is calculated on the total amount of the loan and the protection for it. You should always ensure that protection has not been added on when taking out a loan and when buying a loan online make sure that you are not being tricked into taking out protection at the same time. Sometimes when buying a loan online you have to un-tick a pre-ticked box if you do not want the protection including.

Usually providers will payout on your policy for between 12 and 24 months and during this time you receive a tax-free payment each month you remain unable to work or unemployed. There is also a period of time which you would have to wait before the cover would begin paying out and again this varies. Some providers will begin paying you after 30 days while others could ask you to wait for up to 90 before beginning payout. There are providers who would also backdate your benefit to the first date of unemployment or incapacity; again you have to check the conditions before buying.

Loan payment protection is a perfect solution to stop you worrying about how you would be able to continue meeting the repayments. It guards your credit score, as if you get behind on your repayments this would be affected and then future borrowing could be impossible. If you have large debts by way or loans or credit card the lender could take you to court. If this happens you could get a County Court Judgement against you and see bailiffs seizing your belongings to pay the lender what you owe.

Need Bad Credit Loan: Get It With These Simple Steps

If you have been knocked out of your loan application because of blemishes on your credit, it can be hard for you to deal with everyday life. Good thing, you have lots of options available to get the loan you are looking for, while, at the same time, rebuilding your credit.

Tips to follow before getting a loan

1. Consumers should be aware about the importance of checking credit history. A credit history is included in the credit report and is usually checked for inconsistencies and discrepancies before taking out a loan. The report allows the consumer to detect if something wrong has been reported, because this can affect their credit rating and the decisions of creditors giving out loans for bad credit. Keep in mind that a bad credit score limits an individual’s ability to get premium loan offers, but checking credit history will help decide what type of loan best suits him/her given that his/her current credit standing isn’t doing good.

2. Try other options available for you, like seeking assistance from family members or friends. Before applying loans at major lending institutions, ask significant others first if they can extend a loan to you. This could be very beneficial for both parties, because there’s no need for them to check your credit history. Aside from this, you could save a lot from the high interest rates of bad credit loans, as well as the time it would take to get your loan application approved. Just be responsible in paying them what you owe, or your relationship could be injured.Another option could be through P2P (or peer-to-peer lending) – usually found online. P2P is a win-win for both the borrowers and lenders. Borrowers have to pay low interest rates than regular loans, while independent lenders could earn high interest rates.

3. Check with the credit union or your personal bank first. These are two common places that best suit individuals with poor credit. Your personal bank may approve your application without too much inconvenience, because they are more than willing to work with long-time clients – like you – than with first-time strangers. Keep in mind, though, that your banks will still impose applicable interest rates on your bad credit loans, but they are more lenient in extending a loan to you, because you have money in them. Credit unions, on the other hand, are more suitable for those who have a stable paycheck. Loans from credit unions are usually offered through an employment. Clients with jobs are more agreeable option because credit unions are guaranteed to have the loan repaid properly. Usually, the loan is deducted from the employee’s salary.

4. Loan-seekers can also search online to look for companies that give out loans for bad credit. Make sure to read the terms of conditions before applying, because you might get caught up on hidden fees and charges. Finally, see to it that the company is well-established and has a good consumer rating.

5. The fastest way to obtain a bad credit loan is to look for payday loan. This loan can be applicable for someone who has emergency with no other options of obtaining cash. However, payday loan carry high interest rates and has an extremely short life. If an individual cannot repay on time, more interest is added and the life will be extended. Proceed with caution before taking this option into consideration. If necessary, opt this as your “last resort.” Don’t just go for payday loans if you aren’t sure of repaying on time, because this can cause serious problems on your credit and your finances, as well.