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Some people may view mortgage insurance as just an extra expense, but it has an important role for your home loan. Mortgage insurance is a great way for lenders to offer home loans to more borrowers by allowing lower credit, income, and down payment requirements. Let’s learn more!
Mortgage insurance lowers the risk a lender takes on for issuing you a loan. The lower your down payment and credit score, the higher the risk of default.
Homeowners insurance and mortgage insurance are very different. Where mortgage insurance protects your loan, homeowners insurance protects your physical property from weather related events or other specific perils.
Private mortgage insurance (PMI) is required on conventional loans if a borrower has a down payment of less than 20%. A person’s PMI is usually paid in monthly segments and can be removed once the homeowner reaches 20% equity.
An FHA loan requires a mortgage insurance premium (MIP). MIP comes in two forms: an upfront cost at closing and a monthly fee over the loan term.
Usually, MIP can’t be removed. However, if a borrower makes a down payment of 10% or more, they can request to remove MIP after paying their loan for 11 years.
USDA and VA mortgage programs do not technically require mortgage insurance. However, USDA loans have a guarantee fee and VA loans have a funding fee, both of which serve a similar purpose to mortgage insurance.
Mortgage insurance allows lenders to offer home loans to more qualified borrowers. If a borrower can’t afford or doesn’t have the means to put 20% down for a home, they can still become a homeowner sooner rather than later.
MIP also allows lenders to offer FHA loans with more lenient qualifying criteria than conventional programs. FHA programs have more flexible income requirements, smaller down payments, and lower credit score qualifications.
We’re dedicated to offering home loans that are accessible to more borrowers. To learn more about what loan program is right for your financial goals, contact us!
McGlone Mortgage Group offers exceptional customer service and a convenient mortgage process. Whatever your financing needs, our goal is to exceed your expectations.