If you’re a homeowner, you’ve probably heard of mortgage insurance. However, if you do not own a home, you may be completely unfamiliar with the term. So, what is mortgage insurance? And is every homeowner required to have it? Let’s explore this very important topic together!
Mortgage insurance serves a very simple but important purpose. It enables you to buy a home with a much smaller down payment than would otherwise be required. It also protects your mortgage lender in the unlikely event you weren’t able to make your monthly mortgage payments. While some mortgage loans require the buyer to purchase this type of insurance, others do not. This is what we’ll look into next.
Is Mortgage Insurance for Me?
New homebuyers who make a down payment of less than 20 percent of the purchase price will typically need to tack mortgage insurance onto their home loan. Meanwhile, FHA and USDA loans typically require it regardless of the down payment amount. However, you can avoid this additional expense on most loans with a down payment of 20 percent or more. And, even if you do end up having to pay this extra cost, you may not even notice. That’s because it’s often just woven into your monthly mortgage payment and it’s small compared to your principal balance.
A Word on PMI
If you go the route of a conventional loan, Fairway of the Carolinas may arrange for you to have mortgage insurance with a private company. This is called Private Mortgage Insurance, or PMI. How much you pay in PMI will depend on your down payment amount and credit score. However, PMI rates tend to be less than than FHA rates for homebuyers with a solid credit score. The best news of all? If you have PMI, your payments will likely be monthly. It’s unlikely that you’ll be required to make an initial payment at closing, which is more likely with other loan types. And, in some cases, you can even cancel your PMI once you’ve paid off part of your loan balance!
Want to learn more about mortgage insurance? You can do so right here. Also, if you have any questions on this subject, contact us at Fairway of the Carolinas. We can’t wait to meet you, answer your questions and pilot your loan from start to finish. Let’s chat soon.