NOLA Lending NMLS ID# 206160
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What is Mortgage Insurance For?
Simply put, mortgage insurance (also called “PMI” or sometimes simply “MI”) is designed to provide additional security for home mortgage lenders to ensure that they’ll be insured in the event of a default. The insurance doesn’t cover the homeowner: it covers the mortgage lender or banker. Mortgage insurance is a requirement for some mortgages and, if you don’t have a large enough down payment, you’ll almost certainly have to pay for this coverage.
Why it’s Necessary
When a lender is financing 80 or more percent of the cost of your home, they’ll usually require that you have mortgage insurance. This is because they’re taking a substantial risk in providing this funding and, if you default, they need to make sure that they’re not taking all the risk.
When you apply for your first mortgage, you’ll have to count on this cost being added to the cost of your mortgage as a whole. Most lenders will not be willing to finance a home without some type of risk reduction which is what this insurance provides.
Do You Really Need This Extra Expense?
In a way, mortgage insurance is purely another cost to the homeowner. There are some potential ways that you can lessen it, however. Tax codes allow mortgage insurance to be written off of your taxes, but you’ll have to have an accountant guide you through this process to make sure that you’re doing it correctly, and confirm your income qualifies you for the deduction.
You should also keep in mind that the mortgage insurance may be the only thing that’s even making it possible for you to buy your home. When the lender is putting down over 80% of the purchase price to secure the property, they’re taking a lot of risk. It makes sense for them to demand some way to make sure that they’re not taking on the full amount of that risk and, with mortgage insurance, it’s lessened for them somewhat.
Avoiding Mortgage Insurance
The only way to avoid paying for mortgage insurance is to offer a bigger down payment on your home – typically at least 20%. If you can do this, the lender will forego the requirement for the mortgage insurance. If not, however, you’ll have to factor this cost into the total cost of your mortgage. There are also options for PMI buyouts, single premium or buy downs for discounted premiums monthly. You should discuss these options with your NOLA loan advisor.
The laws that govern mortgage insurance have been changed a bit to make it a more valuable product for consumers and easier to understand. While it may seem like something of a disappointment to have to add this onto your payment for your home, it does make it possible for many people to get the home they want with smaller down payments.
When to Consider Refinancing Your Mortgage for a Better Rate
If you have an adjustable rate mortgage or a home mortgage with rates that aren’t favorable, you may want to consider refinancing. Before you do, however, you have to take a look at your situation and see if it’s a good time to go through with it. Even though the rate will drop, there are some big considerations with this move that you have to take into account.
Has Your Credit Improved?
Your score is important and has an impact on your rate. If you’ve suffered financially in the last few years and your credit score reflects as much, you may want to still call so your lender can tell you what to work on. To get the most basic shortcomings on a credit report fixed:
- Bring all your accounts up to date
- Hold off on applying for any new credit such as credit cards or finance company loans
Some credit repair can be quicker than you think.
Are You Staying In Your Home?
Discuss it with your lender if you think you may have plans on moving within 5 years. They may offer you a different set of mortgage options to get the benefit of a better rate but keep the cost low with products like adjustable rate mortgages.
Talk to a Loan Officer
It’s important to talk to a mortgage advisor about your refinancing options and not just take advice from the neighbor or a family member!
The mortgage experts at NOLA Lending will listen to your situation and may advise that you consider refinancing to bring down your rate. There is sometimes a real financial need to take this step and to bring your rate down to an affordable level. Talking to an expert is the best way to find out what’s out there and how you can get credit in these rather tough times.
