When home buyers are approved for a home loan, mortgage insurance may be required. Here’s a summary of what you need to know about mortgage insurance in 2018.
What Is Mortgage Insurance?
As explained by the Consumer Financial Protection Bureau, mortgage insurance (often called PMI or Private Mortgage Insurance) is a type of insurance that is designed to protect your lender. In the event that you fall behind on your mortgage payments, your mortgage insurance will kick in, ensuring that the lender receives the payments they’re owed.
When Is Mortgage Insurance Required?
Mortgage lenders want to make sure that when they’re lending out tens and hundreds of thousands of dollars borrowers are going to repay that money. If the bank questions your ability to repay your loan in the slightest (i.e. you do not make a big enough down payment (20 percent), you have average credit score or limited credit history, etc.) then you may be required to carry mortgage insurance. Mortgage insurance is also more common for certain loan types; FHA loans and USDA loans typically require mortgage insurance. In some cases, private mortgage insurance may help you to qualify for a loan for which you would otherwise be denied.
Paying for Private Mortgage Insurance
In most cases, you will not pay a lump sum amount for mortgage insurance; rather, the payments will be included monthly with your regular monthly mortgage dues.
According to Freddie Mac, the cost of your PMI depends on your loan-to-value ratio (the amount of money that you owe on your house vs. the amount that your home is worth) and your credit score. In most cases, a typical borrower will pay between $30 and $70 per month for every $100,000 borrowed. So if you borrow $200,000, the $30-$70 amount will double.
Should I Move Forward with Mortgage Insurance?
Whether or not you should get mortgage insurance really depends upon your financial situation. If waiting another five-to-10 years to save up enough for a down payment is the only other alternative, you may want to get a foot in the door with home-buying by choosing PMI. If you’re only a year or two away to your goal down payment and credit score, waiting may save you more money over time. You may also be able to cancel your PMI after a certain amount of time or when refinancing to take advantage of better interest rates. Talk to your lender to learn more about your options.
Financing Options and New Homes for Sale
Are you buying your first home? Thinking about moving to something bigger? Looking to relocate to a great community? We can help. At Hayden Homes, we have homes for sale throughout the Northwest, including in Idaho, Washington, and Oregon. Browse our floor plans here and start building your plan to get into your dream home today!