What Is Mortgage Insurance?
Homebuyers are required to pay what is known as “mortgage insurance” when they either have less than 20% equity in their home when refinancing or when putting less than 20% down on a home purchase on Conventional and Jumbo loans. Other forms and requirements for mortgage insurance exist for FHA, VA and USDA mortgages.
It is critical that you discuss all your mortgage insurance options with Mark before you decide which mortgage plan is best for you. The different mortgage insurance options that you have, and may not be aware of, can result in very different mortgage payments.
Conventional Loan Mortgage Insurance
Conventional Home Loans require mortgage insurance when a borrower’s mortgage exceeds 80% of the home’s purchase price or value whichever is less on a home purchase. Mortgage insurance is also required on a refinance when a homeowner’s mortgage exceeds 80% of the home’s appraised value.
Private Mortgage Insurance (“PMI”)
Mortgage Insurance on a Conventional loan is referred to as “PMI” which stands for Private Mortgage Insurance. Mortgage insurance on a Conventional Home Loan is provided by a third party insurance company. Your mortgage lender should help you obtain the best possible mortgage insurance quote.
Mortgage Insurance Options
There are 4 different Mortgage Insurance Payment Options to choose from when utilizing a Conventional Mortgage. It is very important for you to to consider each option before choosing how you will pay for your Conventional mortgage insurance.
1. Monthly Mortgage Insurance: Mortgage insurance payment is added to the borrower’s overall monthly mortgage payment.
2. Financed Mortgage Insurance: A one-time premium is financed into the borrowers final loan amount at closing (there is no monthly mortgage insurance payment).
3. Lender Paid Mortgage Insurance: The borrower’s Kentucky Mortgage Lender increases their interest rate above the market rate in order to pay for the borrower’s mortgage insurance costs (there is no monthly mortgage insurance payment).
4. Single Borrower Paid Premium Mortgage Insurance: The borrower brings in funds at closing to pay for a one time mortgage insurance premium at the time of their loan closing (there is no monthly mortgage insurance payment).
Each of these 4 options results in a very different mortgage payment. In addition, the options outlined above fit different long and short term plans. I will help you compare each of the 4 options in order to help figure out which one meets your needs.