What is Mortgage Insurance?
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.
f you get a conventional loan, your lender may arrange for mortgage insurance with a private company. Private mortgage insurance (PMI) rates vary by down payment amount and credit score but are generally cheaper than FHA rates for borrowers with good credit. Most private mortgage insurance is paid monthly, with little or no initial payment required at closing. Under certain circumstances, you can cancel your PMI.
If you get a Federal Housing Administration (FHA) loan, your mortgage insurance premiums are paid to the Federal Housing Administration (FHA). FHA mortgage insurance is required for all FHA loans. It costs the same no matter your credit score, with only a slight increase in price for down payments less than five percent. FHA mortgage insurance includes both an upfront cost, paid as part of your closing costs, and a monthly cost, included in your monthly payment.
If you dont have enough cash on hand to pay the upfront fee, you are allowed to roll the fee into your mortgage instead of paying it out of pocket. If you do this, your loan amount and the overall cost of your loan will increase.
If you get a US Department of Agriculture (USDA) loan, the program is similar to the Federal Housing Administration, but typically cheaper. Youll pay for the insurance both at closing and as part of your monthly payment. Like with FHA loans, you can roll the upfront portion of the insurance premium into your mortgage instead of paying it out of pocket, but doing so increases both your loan amount and your overall costs.
If you get a Department of Veterans Affairs (VA)-backed loan, the VA guarantee replaces mortgage insurance, and functions similarly. With VA-backed loans, which are loans intended to help service-members, veterans, and their families, there is no monthly mortgage insurance premium. However, you will pay an upfront funding fee. The amount of that fee varies based on:
Your type of military service
Your down payment amount
Your disability status
Whether youre buying a home or refinancing
Whether this is your first VA loan, or youve had a VA loan before
Like with FHA and USDA loans, you can roll the upfront fee into your mortgage instead of paying it out of pocket, but doing so increases both your loan amount and your overall costs.
Tip: Once you've paid off some of your loan, you may be eligible to cancel your mortgage insurance. If you are able to cancel, you won't have to pay the monthly cost. Learn more about cancelling your mortgage insurance in my post "How To Remove PMI"
Jamie LaskieNMLS 1641628970-581-4811Guild Mortgage Company is an Equal Housing Lender; Company NMLS #3274 Jamie Laskie is a licensed Loan Officer in Colorado for Guild Mortgage Company; Regulated by the CO Division of Real Estate. Licensed in the state of Colorado, NMLS #1641628. The postings on this blog don't necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates. This information is not guaranteed to be accurate and shall not be construed as a guarantee of loan approval. All loans are subject to underwriter approval, and are subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction. The information provided herein has been prepared by a third party and has been distributed for education purposes only. The positions, strategies or opinions of the author do not necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates. Each loan is subject to underwriter final approval. All information, loan programs, interest rates, terms and conditions are subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.
Not a commitment to lend. The content on this page provides general consumer information. It is not legal advice or regulatory guidance. Information taken from www.consumerfinance.gov.