Seller pays for borrower’s private mortgage insurance on home purchase

Mortgage banker: Dave Stambone

Home value: $605,000

Property type: Single-family, owner-occupied purchase in Wilton

Loan amount: $574,750

Loan terms: Conventional, 30year fixed — 4.75 percent no points.

Backstory: Stambone pre-approved a couple that was ready to move up from condo living to a larger single-family home purchase. They had good credit, little debt, strong income and employment history.

It was important to save the couple as much money per month as possible, while leveraging the cash they had available. The couple was not comfortable with an adjustable rate mortgage, an interest only mortgage or even breaking the transaction up into two loans.

Furthermore, the couple did not have access to a 20 percent down payment, which would allow them to avoid having to pay monthly private mortgage insurance.

Private mortgage insurance is an additional monthly cost that is required when making a down payment of less than 20 percent. It is an insurance policy a lender takes out that covers the difference between the down payment and 20 percent if the couple defaults on the mortgage.

For example, if the borrowers put down 5 percent and default on the loan, the lender can put in a claim with the PMI company and be protected for the difference of 15 percent.

The cost of monthly PMI will vary depending on the type of property, occupancy type, credit score, down payment, loan type and loan amount. In this situation, the couple was faced in having to pay an additional $220 per month for PMI. The monthly payment could last for approximately nine years before it may be removed, and cost more than $23,000.

Stambone and his bank presented a different option to avoid the monthly PMI charge altogether.

The borrowers opted for a single premium mortgage insurance program in exchange of making the monthly PMI payment. As a single premium, the PMI cost would be made as one lump sum payment at closing. The cost of the single premium PMI was $6,000 compared to potentially paying $23,000 over time.

Additionally, Stambone advised the buyers and their Realtor to include a $6,000 seller paid, closing cost credit to be included when presenting their offer. The buyers and seller negotiated back and forth and eventually settled on a price of the home, which included the credit for the PMI.

The couple was thrilled with the outcome and grateful to Stambone and his team for their creative approach. The program allowed them to better qualify for the mortgage and freed up a large sum of money to be invested elsewhere each month.