What you need to know about mortgage insurance

Dated: May 29 2018

Views: 154

Homeowners insurance and title insurance may not be the only kinds of insurance you need when you buy a home. Many buyers also have to purchase mortgage insurance, which lenders require for mortgages with a down payment of less than 20 percent. Take the time to understand what you’re buying and how long it will affect you.

Mortgage Insurance Protects the Lender

Most types of insurance will pay you if you make a claim. Mortgage insurance, though, is solely for the lender. If you were to stop making payments and the lender foreclosed on your home, the mortgage insurance would pay the lender the difference between the profit from selling your home and the amount you still owed on your mortgage.

Types of Mortgage Insurance

When you have a mortgage with a traditional lender, you get private mortgage insurance, often abbreviated PMI. This insurance is provided by a third party, although your lender will typically dictate who provides the coverage. When you get an FHA mortgage, the federal government offers the mortgage insurance, and you pay mortgage insurance premiums, often abbreviated MIP.

Mortgage Insurance Amount

You can expect to pay 0.5 percent to 1 percent of your loan balance each year for private mortgage insurance. The federal government sets FHA mortgage insurance premiums, and as of 2017, are 1.75 percent of the loan balance up front, plus 0.45 percent to 1.05 percent of the loan balance each year, depending on the type of loan.

How to Stop Paying Mortgage Insurance

FHA loans have mortgage insurance until the loan is paid off, either through regular payments or by refinancing. Traditional loans automatically cancel mortgage insurance when you have reached the point on your amortization schedule where the loan balance drops below 78 percent of the purchase price. You also may be able to apply to cancel mortgage insurance as soon as your loan balance is less than 80 percent of your home’s current appraised value.

How Can You Get Around Paying Mortgage Insurance?

When purchasing a home, the only way to avoid having to buy mortgage insurance is to get a mortgage for less than 80 percent of the home’s purchase price. However, the cost of mortgage insurance may be something you’re willing to pay for the opportunity to buy now without a down payment of 20 percent.

 

Latest Blog Posts

Housing Market Show Signs of Slowing, But Seller’s Market Continues May 2021, Volume 153

May home sales decreased 0.2%, compared to the average April-to-May increase of 13.9%. However, year-over-year, sales rose 53.4%.​The median home price remained the same as April at $320,000. The

Read More

7 of Utah’s Best Fishing Spots

Although Utah is known for its world-class winter activities, our great state boasts beautiful scenery, abundant wildlife and some outstanding fishing holes. Check out one of these hidden gems

Read More

Moving into a New Home

Now that you have secured your new home you have to move in. With so many things to do to get your home ready, you have a lot of work ahead of you. A lot of that is for the future though. To survive

Read More

What do you need to know about closing costs?

There are a lot of different phases of the home buying process. The part that most people imagine and hope for someday is the day you get the key and can finally move into the house. Usually the

Read More