If you can’t meet the standard down payment on a mortgage loan and still want to be a home owner, don’t despair! Mortgage insurance was created for this situation so that both borrowers and lenders can benefit.
Just like you have health or car insurance in case of an emergency, mortgage lenders require mortgage insurance for similar reasons. Mortgage insurance helps minimize the risk to the lender who lends to borrowers that can’t meet at least the 20% down payment threshold on the loan.
What is Mortgage Insurance?
One of the great things about mortgage insurance is that it makes you a more attractive candidate to mortgage lenders. It’s your way of showing the bank they can trust you with this huge loan if you don’t have that extra cash in your pocket right away.
What’s The Cost?
Mortgage insurance increases the cost of your overall home loan. The cost will be included in your monthly mortgage payments that you make, and can possibly be included in your closing costs as well. Borrowers can request that the insurance be canceled as soon as 20% of the principal balance is paid off.
Conventional Loans: Depending on your down payment, credit score, and other factors, private mortgage insurance is generally cheaper than FHA rates. With private mortgage insurance, little to no initial payment is required at closing. The cost is affected by the loan amount, credit score and LTV (loan to value) percentage. The higher the credit score the lower the payment. Also, the lower the LTV, the lower the payment.
For example. If your loan to value is 95%, your mortgage insurance payment will be more than if you put 10% down and your LTV was 90%.
FHA: If you qualify for a Federal Housing Administration loan, FHA mortgage insurance is required for all FHA loans. No matter your credit score, the insurance will cost the same. FHA mortgage insurance is paid as a part of your closing costs, (upfront cost) and will also be included in your monthly mortgage payment.
USDA: With a US Department of Agriculture (USDA) loan, the mortgage insurance policy is pretty similar to the FHA loan, only a little bit cheaper. Instead of paying the insurance premium up front, like FHA loans, you can include it in your monthly payments. However, this does increase your loan amount and overall costs.
VA: There are many great benefits that come with qualifying for a Department of Veterans’ Affairs (VA) loan. With this loan program there is no monthly mortgage insurance premium. However, there will be an upfront “funding fee”. How much this fee costs depends on a few factors, such as..
Can I Get Out Of Paying Mortgage Insurance?
Many people don’t factor in the extra cost that mortgage insurance brings when they are planning their housing budget. Generally the best way to avoid paying this insurance is to have 20% or more to apply to your down payment up front.
For more tips on how to avoid mortgage insurance click here or any of the links below!
We are here for you every step of the way and can thoroughly answer any question you may have. If your goal this year is to become a homeowner, don’t put it off any longer! Take the first step and get a quick estimate of what you may qualify for today! Use our Online Accelerator application here – or Call us at 480-832-4343