“You can get a mortgage that avoids PMI, but you can’t avoid MIP on an FHA.”
That’s exactly what we said the first time we saw this commercial from Rocket Mortgage that was first featured in Super Bowl LII a few years back.
Rocket Mortgage has been around for awhile, and has always asserted that it helps potential homebuyers apply simply, understand fully, and mortgage confidently.
But what exactly does Rocket Mortgage do that’s different from other lenders?
This commercial features Keegan-Michael Key translating various jargon into easily understandable terms for the individuals in the ad. Translations range from haircuts to food to mortgages.
However, unlike the other easily explained items (hair, food, song lyrics), when it comes to the mortgage jargon Key simply tells the couple to go to Rocket Mortgage.
Wah-lah, all their problems are solved!
The commercial ends with a voice-over stating that Rocket Mortgage makes the complex simple so you can understand the details and get approved quickly, even in minutes!
But the thing is, this commercial does not explain the mortgage jargon it features and is extremely misleading in its message. It’s like so many other advertisements we see.
Again, what exactly makes Rocket Mortgage different from other lenders?
We’re glad you asked.
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What is Rocket Mortgage?
So, let’s clear the air and lay out exactly what Rocket Mortgage is and isn’t, starting with the jargon that isn’t explained in the commercial.
The exact statement made is that “you can get a mortgage that avoids PMI, but you can’t avoid MIP on an FHA.”
The first acronym used is PMI, or private mortgage insurance. To put it simply, if you have a conventional loan and do not put 20% of the purchase price down you will pay mortgage insurance, no matter the lender. PMI gives an extra cushion to the lender in case you end up in foreclosure. The amount of PMI you’ll pay is typically between 0.5% and 1% of the initial loan amount and is determined using a loan-to-value table (what you owe versus the value of the home).
The second set of acronyms are a mouthful but are very easy concepts to explain. MIP on an FHA translates to mortgage insurance premium on a Federal Housing Administration loan. FHA is a program that has been around for years that enables people to purchase a home with a smaller down payment (as low as 3.5%) and a lower credit score.
So, what’s the difference?
Well, there really isn’t any major difference here, as both terms boil down to paying extra mortgage insurance as a cushion in case you default on the loan.
The difference lies in the type of loan you have: conventional versus FHA.
Conventional loans are backed by Fannie May and Freddie Mack, and typically require at least 5% down and a higher credit score (620-700 or higher). Additionally, any PMI paid is dropped once you reach an 80% loan-to-value ratio.
FHA loans, on the other hand, are backed by the government, require a 3.5% minimum down payment, and have much lower credit score requirements (580 for maximum financing). Furthermore, if the loan-to-value ratio was more than 90% at purchase, you will pay mortgage insurance premium for the life of the loan (unless you refinance). Thus, even though an FHA allows you to put less money down up front and let’s you borrow with a lower credit score, the penalty of paying MIP could cost you big over the life of the loan.
We’ll do our best Key impression and tell you that the difference between PMI and MIP is that you are guaranteed to pay mortgage insurance (MIP) on an FHA loan because you are putting so little down at purchase, whereas you can avoid mortgage insurance (PMI) on a conventional loan if you put 20% down.
You can get a mortgage that avoids PMI, but you can’t avoid MIP on an FHA.
Does Rocket Mortgage Really Make it Simple?
Let’s switch our attention to the main assertion of the commercial: that Rocket Mortgage makes the complex simple so you can understand the details and get approved quickly.
Well, kind of.
What exactly does Rocket Mortgage offer that’s different from a regular mortgage lender?
We’ve never used Rocket Mortgage, but after some research it seems that the main difference is that Rocket Mortgage cuts down the time and effort you need to put in to gathering the necessary paperwork and information required to get pre-qualified.
That’s really the main difference.
Essentially, the Rocket Mortgage platform asks you to plug in some key information about yourself, which then allows the system to pull the data necessary to determine the different loan options available to you. Once you have your options, you can pick the loan terms that work best and sign the necessary documents, all online. This streamlined process takes out the need to gather pay stubs, tax returns, and other documents normally needed to get pre-qualified. The system can gather your documents and calculate your loan options within a few minutes, all without speaking to a mortgage professional.
Theoretically, you can pick your loan option and get pre-qualified in around 10 minutes from start to finish with this automated process.
But should you?
Should You Use Rocket Mortgage?
While Rocket Mortgage may remove the hassle of gathering the necessary documentation for a mortgage, we would not recommend picking your loan option after only a few minutes of consideration.
A home is often the biggest purchase you will ever make, and you should spend as much time and consideration picking your mortgage lender as you do your home.
There are a lot of things to consider when buying a home, and you should never rush into your decision. Rocket Mortgage may be one of the options you look into, and may even ultimately go with, but you should definitely shop around and consider all your options before making a decision.
I spoke with 5 different potential lenders before deciding on the one that was right for me. Different lenders may offer different options and incentives. However, what ultimately sold me on my lender was not only the fact that they’d offered a loan option that worked well for me, but that they were easily accessible whenever I needed something. I had a designated person who provided me with a spreadsheet breakdown for each home I considered making an offer on. I knew exactly what payment I would have, what closing costs would be, and how much down payment I would have to make to stay at the monthly payment I could afford.
Best of all?
I never met them in person. I was able to scan all documents and correspond via email and phone whenever I needed to.
Now, we’re not saying that Rocket Mortgage isn’t a good option to consider. What we are saying is that you need to understand what Rocket Mortgage is and isn’t before deciding whether it is the best option for you.
Rocket Mortgage does automate the application process so that your data can be gathered and analyzed quickly by the system, allowing customized loan options to be offered in a few minutes.
Rocket Mortgage does not explain loan parameters or options any better than a traditional lender. Rocket Mortgage also does not necessarily get you a better deal because they use the same information and factors to determine your loan qualifications as any other lender.
Moral of the Story
Unfortunately, Rocket Mortgage will not magically solve all your problems, as the only significant difference between it and traditional lenders is the automated information gathering system.
Like many advertisements, the Rocket Mortgage Super Bowl commercial is very misleading.
It implies that Rocket Mortgage will explain your loan terms and options in simple language when other lenders will not. That is simply not true. Any lender will discuss loan terms and parameters with you, and you’ll likely receive more attention, effort, and clarity from a local lender that you can meet in person.
It also suggests that you can get a loan in under 10 minutes. While this may be technically accurate, you should never make a mortgage decision in 10 minutes and you should always consider all options before pulling the trigger on a mortgage.
You should shop around as much for a mortgage as you do with any other purchase.
If you’re too lazy to scan your documents to a lender Rocket Mortgage is a good option. Otherwise, shop around before you make your final decision. Rocket Mortgage may ultimately be the one, but don’t let a little paperwork keep you from potentially getting a better deal somewhere else.
Something we strongly recommend is speaking to a friend or family member who has been through the mortgage process before. This person will have your best interests in mind and will be able to share valuable insight and knowledge. Essentially, they can spare you a lot of grief because they’ve already been through it and know what to look for.
While we don’t think Rocket Mortgage is a better deal, we do agree with them on some points. When it comes to mortgages you should always understand fully and mortgage confidently, but you can get that from many lenders.
Talk about Money Saved.