If you’re looking to purchase a home, having enough funds for a down payment and monthly mortgage payments is something you need to take into account. Traditionally, you would need a 20% down payment to purchase a home, but this is not possible for everyone, which is where mortgage insurance comes in. In this article, we are going to discuss how mortgage insurance may be able to help you finance your home.
What is mortgage insurance?
Mortgage insurance makes it possible for aspiring homeowners to buy a home if they don’t have a 20% down payment. This type of insurance was created to protect the lender in case you default on your loan by paying them a portion of the principal. The insurance amount is usually included in your monthly mortgage payment.
It’s important not to confuse private mortgage insurance (PMI) with mortgage life insurance or mortgage disability insurance, which pays off the mortgage balance if the homeowner dies or becomes disabled, respectively.
How much does PMI cost?
For every $100,000, you can expect to pay between $40 and $80 monthly. Note that this is just an estimate, and your actual payments will depend on factors such as your credit score and the amount you borrowed on your mortgage in comparison to the home’s value.
How can I make my PMI payments?
Mortgage lenders give borrowers two options for payment: an upfront payment at closing or monthly premiums. If you are going with the second option, the premiums will be included in your mortgage payment. Paying monthly carries less risk than paying upfront, because you won’t lose any money if you decide to move or refinance your home.
Can I cancel my PMI coverage?
You can only cancel your PMI payments once your loan-to-value ratio has fallen below 80% of your home’s original appraised value. Those who are delinquent on their payments or take out a second mortgage don’t qualify for PMI cancellation, so make sure you follow the requirements set by your mortgage lender. If you are in good standing, you would just have to submit your cancellation request in writing.
What is FHA mortgage insurance premium (MIP)?
FHA loans have a minimum down payment and are more flexible with their credit requirements. In fact, the required down payment could be as low as 3.5%. FHA home loans typically ask for an upfront mortgage insurance premium and an annual premium as follows: 1.75% of the loan amount and 0.45% to 1.05% of the average outstanding balance, respectively.
Your payment plans for MIP depend on the amount you put down. If you put down less than 10%, you will be responsible for paying the MIP monthly until the end of your FHA loan. If you were able to put down more than 10%, you will pay MIP for 11 years.
For questions about mortgage insurance, contact Superior Insurance & Auto Tags today!