What is Mortgage Insurance

A Borrower making less than 20% down payment towards the purchase of a home requires mortgage Insurance. It is required on all FHA and USDA loans. Mortgage Insurance lowers the risk of the lender and helps the borrower qualify for a loan which they otherwise may not qualify for, however it increases the cost of the loan to the borrower. If the borrower is required to pay mortgage insurance, it would be added to the closing costs or the monthly payment and in some cases, both. 

On Conventional Loans, the lender would typically arrange for Mortgage Insurance through a private lender. The rate of the PMI would vary based upon the down payment you make and your credit score. Under certain circumstances, during the term of the loan, you may qualify to cancel the Private Mortgage Insurance. 

For FHA Loans, the Mortgage Insurance Premium is paid to the Federal Housing Administration. FHA requires Mortgage Insurance on all FHA loans and it costs the same regardless of your credit score and costs the same other than a slight increase in cost if down payment is less than 5%. There is an upfront cost for Private Mortgage Insurance at closing plus a monthly cost that is included in your down payment. 

On VA Loans, the Department of Veterans Affairs guarantee the loan that replaces the Mortgage Insurance. Therefore there is no extra cost of Mortgage Insurance on VA loans. VA loans however have an upfront funding fee. The fee varies based upon the type of military service, Down Payment amount, Disability status, whether buying or refinancing and if it is the first VA loan or the borrower had a VA loan before. 

USDA Loans have an Annual Guarantee fee added to the monthly payment that lasts for the life of the loan. The cost however is less than Private Mortgage Insurance. The upfront Guarantee fee can be added to the loan amount rather than paying out of pocket, however it increases the overall cost.

Certain borrowers may qualify for a second "piggyback" mortgage as an alternative to Private Mortgage Insurance. It is recommended to compare the overall cost of the loan by using a second "piggyback" loan option as an alternative to Private Mortgage Insurance. It can benefit certain borrowers. 

Related Topics:        FHA Loans                VA Loans                USDA Loans                Conventional Loans                A Fixed Rate Mortgage                An Adjustable Rate Mortgage                What is a Credit Check                What is a Credit Score                What is Private Mortgage Insurance and the Purpose? What are the Benefits of private mortgage insurance? Explain Facts on private mortgage insurance and ratios?                Explain Prohibition on mortgage insurance on certain loan types                What is Upfront mortgage insurance premiums?                How is the Upfront mortgage insurance premium calculated?                        


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