What Is Mortgage Insurance And Understanding Mortgage Insurance
Understanding Mortgage Insurance:
Most folks do not apply for home loans often and most people may only purchase two to three homes in their lifetimes. Unfortunately, the mortgage process is a very complex process and can often be confusing to even home buyers who have gone through the mortgage application process many times before. The whole mortgage industry went through a major overhaul after the 2008 Mortgage And Real Estate Collapse and new rules and mortgage regulations were created and implemented. A large percentage of mortgage loan originators and real estate agents left the field right after the 2008 Real Estate And Mortgage Meltdown because the mortgage and real estate industry came to a complete stand still. Many real estate professionals and mortgage professionals who have been in the business for decades and left the industry and who are coming back to the real estate and mortgage fields need to get fully re-train and relearn the industry due to so many changes. Understanding Mortgage Insurance can be quite complex and one of the most common questions from consumers is about mortgage insurance, how mortgage insurance works, is mortgage insurance mandatory, who benefits from mortgage insurance, and understanding mortgage insurance.
Understanding Mortgage Insurance: When Is Mortgage Insurance Required
There are several types of mortgage insurance and on this article we will help our viewers understanding mortgage insurance. FHA , USDA, and VA have upfront mortgage insurance premiums. FHA and USDA also have annual mortgage insurance premiums whereas VA does not require annual mortgage insurance premium. Conventional Loans, also called conforming loans, require private mortgage insurance on mortgage loan borrowers who have less than 20% equity on their home loans or greater than 80% Loan To Value. Mortgage insurance is mandatory by mortgage lenders and the mortgage loan borrower needs to pay for it for the benefit of the mortgage lender. Mortgage Insurance is another fee that the homeowner needs to pay monthly as a housing expense.
Understanding Mortgage Insurance: When Is Mortgage Insurance Required By Lenders
Private Mortgage Insurance is mandatory by Conventional Mortgage Lenders when a mortgage loan has a loan to value of higher than 80%. This is when a home buyer does not have the 20% down payment on a home purchase on a home. The reason why mortgage lenders require private mortgage insurance if home buyers do not put at least 20% down payment on a home purchase is in the event if the mortgage loan borrower defaults on their home loan, the private mortgage insurance company will protect the mortgage lender against the default of the mortgage loan. Understanding Mortgage Insurance, again, may not make sense and for sure will not benefit the homeowner but mortgage loan borrowers needs to take some time in understanding mortgage insurance basics.
What Types Of Mortgage Loans Require Mortgage Insurance
The two types of mortgage insurance that mortgage loan borrowers will encounter are private mortgage insurance, also referred to as PMI, and mortgage insurance premium, which is referred to as MIP. Private Mortgage Insurance, PMI, is for conforming loans, Conventional Loans, and conventional mortgage lenders require private mortgage insurance in order to protect themselves from borrower default. Fannie Mae has 3% down payment conventional loan programs first time home buyers and Freddie Mac has the 3% down payment conventional loan programs for home buyers who have not owned a home for at least the past three years. Most other conventional loan programs require 5% down payment on home purchase and require minimum credit scores of 620 FICO.
Mortgage Insurance Premium is required on all FHA Loans. FHA Loans require upfront FHA Mortgage Insurance Premium, which is a one time 1.75% fee of the mortgage balance and this charge is rolled into the mortgage loan where the FHA loan borrower does not have to come up with this fee out of pocket. FHA also require FHA annual mortgage insurance premium of 0.85% on all FHA mortgage loans no matter how much the home buyer’s down payment is. FHA is a governmental agency and insures all FHA Loans to FHA approved mortgage lenders who originate and fund FHA Loans and follow FHA Guidelines .
Understanding Mortgage Insurance: How Can Mortgage Insurance Be Avoided?
The only way to avoid private mortgage insurance with conventional loans is to put 20% down payment on a home purchase. There are conventional loan programs called Lender Paid Mortgage Insurance is where no private mortgage insurance is required on conventional loans in lieu of a higher mortgage rate. Many times, it is better and cost efficient for a conventional mortgage loan borrower to pay private mortgage insurance on a conventional loan instead of going with a Lender Paid Mortgage Insurance conventional loan. Your mortgage loan originator will go through which is a better program for you. With 30 year FHA fixed rate mortgage loans, annual FHA mortgage insurance premium is mandatory no matter how much down payment a home buyers puts down.