Understanding what mortgage insurance is can be confusing. Is it the same as homeowners insurance? Is it part of your payment? When do you pay it? Does it ever get paid off?
Join us as we answer Bethany’s questions and learn how to best prepare when buying a home!
Mortgage insurance is paid if you as a borrower were to make a down payment of less than 20 percent on your home loan. It is paid by you, but is used to protect the lender from losses if you were to default on the loan. When it comes to the FHA, borrowers must pay a mortgage insurance premium, or MIP, on the home loan.
Mortgages with an LTV of 89.99% or less will not be charged annual mortgage insurance premiums. If your loan was originated on or after April 18, 2011, FHA made a change to their MIP factors which impacted the 15-year loan.
Mortgage insurance lowers the risk to the lender of making a loan to you, so you can qualify for a loan that you might not otherwise be able to get.
Typically, borrowers making a down payment of less than 20 percent of the purchase price of the home will need to pay for mortgage insurance. Mortgage insurance also is typically required on FHA and USDA loans. Mortgage insurance lowers the risk to the lender of making a loan to you, so you can qualify for a loan that you might not otherwise be able to get. But, it increases the cost of your loan. If you are required to pay mortgage insurance, it will be included in your total monthly payment that you make to your lender, your costs at closing, or both.
Warning: Mortgage insurance, no matter what kind, protects the lender – not you – in the event that you fall behind on your payments. If you fall behind, your credit score may suffer and you can lose your home through foreclosure.
Hi, it’s Bethany again and I talked to one of those bank people you said and they said I have to pay some kind of mortgage interest and I don’t know what that is. Can you help me out?
Hi Bethany, it’s Stephanie Carter of The Monarch Team at Keller Williams and it’s so good to see you. It’s been a little while.
It is a little confusing. Mortgage Insurance is actually an interest that you pay in your loan when you’re putting less than 20% down. It does vary by loan so FHA and conventional have different requirements and the important thing to know is when that falls off so you want to ask questions.
I hope that kind of helps clear it up just a little bit. Of course, if you need more information we are here to help because we love what we do and you will too.
Hope that helps and if you have any questions, tips or tricks, just give us a call. Have a great day!