What is Mortgage Insurance?
What is Mortgage Insurance?
Buying a home is a process that comes with many moving parts. When getting a mortgage, a few things to be aware of are the costs and fees associated with the entire process. An important cost of homeownership is Mortgage Insurance. So, what is mortgage insurance, and who needs it?
What Is Mortgage Insurance?
Mortgage insurance (MI) is an insurance policy that protects mortgage lenders in the case of a borrower defaulting on a home loan. These policies also provide protection if a borrower passes away or is otherwise not able to continue with their expected mortgage payments. The insurance offers protection from risk, and allows lenders to provide loans to more borrowers with a variety of financial backgrounds.
Mortgage insurance allows buyers to qualify for loans with lower down payments, but adds to monthly costs, with common types being Private Mortgage Insurance (PMI) for conventional loans and Mortgage Insurance Premiums (MIP) for FHA loans. There are a few types of mortgage insurance that cover different types of loans and borrowers. Private mortgage insurance (PMI), and other kinds of insurance are all worth discussing with a mortgage professional when seeking a loan.
Which Loans Require Mortgage Insurance?
Typically, mortgage insurance is required for Federal Housing Administration (FHA) loans or if a buyer is putting less than a 20% down payment on the home. For FHA loans, there may be a slight increase in mortgage insurance if the down payment is less than 5% of the home’s asking price. Insurance is also often required for USDA (United States Department of Agriculture) loans as well. In the case of Conventional loans, a lender may require PMI depending on the buyer’s down payment or credit score.
Regardless of the type of mortgage insurance, the cost will typically be included in the homebuyer’s monthly mortgage payment. Some forms of mortgage insurance may include a payment at closing, so borrowers should always speak with their lenders to make sure they’re aware of expectations.
Knowing the ins-and-outs of mortgage insurance can seem complicated, but a lending professional can help demystify the process and get you started with your home buying journey. If you have questions or are seeking additional information, feel free to give us a call at 1-800-862-7803, and our mortgage professionals will be happy to help you every step of the way.