Bankers have for years advocated the use of multiple trust deeds as a way to eliminate the need for private mortgage insurance known as PMI. This insurance is paid for buy the borrower but serves only to protect the lender against default on the loan. By using trust deeds instead of PMI, the monthly mortgage payment can be lower. This helps both the borrower and also the lender by assuring that payments can continue to be made.
Many banks have ceased to offer 80/20 100% financed loans, but there is now a new product that will allow for 100% stated income financed loans. The 80/20 model was terminated because with the housing meltdown, banks were no longer able to sell off their 20% loans on the secondary market due to the high number of defaults on these types of loans. They were deemed too risky. The new product, designed to replace the 80/20 offers 100% financing and has built in PMI. This offers banks the protection they need while still costing the consumer less than traditional PMI. Buyers will still be able to purchase homes in high cost areas without having to pay high PMI fees and the banks are still risking less.
Other people still believe that PMI is the best bet over the long term. Since PMI is only required until the buyer has achieved 20% equity in the current home value to outstanding mortgage ratio, usually after a few years the PMI could be dropped and the mortgage payment greatly reduced. Benefits added by the federal government also help make PMI attractive. For households with an adjusted gross income of less than $100,000, the PMI can be deducted as an expense from their taxes. For many people, this will offset the cost of PMI and make this type of loan the better option.
With the current state of the housing and banking markets, we can expect for 100% loans with PMI to be the standard for the foreseeable future. Banks are absolutely unwilling to take any risk and buyers are expected to shoulder the burden of all such risk. The government has helped absorb some of the cost by offering tax breaks on these types of loans. In the near future, the 80/20 model of dual trust loans will be very rare and potential home buyers are advised to research the costs and benefits of PMI.
Many banks have ceased to offer 80/20 100% financed loans, but there is now a new product that will allow for 100% stated income financed loans. The 80/20 model was terminated because with the housing meltdown, banks were no longer able to sell off their 20% loans on the secondary market due to the high number of defaults on these types of loans. They were deemed too risky. The new product, designed to replace the 80/20 offers 100% financing and has built in PMI. This offers banks the protection they need while still costing the consumer less than traditional PMI. Buyers will still be able to purchase homes in high cost areas without having to pay high PMI fees and the banks are still risking less.
Other people still believe that PMI is the best bet over the long term. Since PMI is only required until the buyer has achieved 20% equity in the current home value to outstanding mortgage ratio, usually after a few years the PMI could be dropped and the mortgage payment greatly reduced. Benefits added by the federal government also help make PMI attractive. For households with an adjusted gross income of less than $100,000, the PMI can be deducted as an expense from their taxes. For many people, this will offset the cost of PMI and make this type of loan the better option.
With the current state of the housing and banking markets, we can expect for 100% loans with PMI to be the standard for the foreseeable future. Banks are absolutely unwilling to take any risk and buyers are expected to shoulder the burden of all such risk. The government has helped absorb some of the cost by offering tax breaks on these types of loans. In the near future, the 80/20 model of dual trust loans will be very rare and potential home buyers are advised to research the costs and benefits of PMI.
SHARE
