Trying to secure a home loan? Looking to get pre-approved as a first-time homebuyer?
Before selecting your lender and starting the home-buying process, it’s important to know what mortgage insurance is and how it works. Let’s get started!
Private mortgage insurance (PMI), sometimes called mortgage insurance premium (MIP), is an insurance policy that protects the lender in case the borrower defaults on the mortgage. You are required to have mortgage insurance with conventional financing unless the purchase includes putting 20 percent down, or on a refinance with 20 percent equity.
While there's no way to avoid it other than putting 20 percent down or more, there are several conventional mortgage insurance options, most of which consumers are not ever made aware of. Inform yourself by reading about your mortgage insurance options below.
The options will vary depending on the qualifications, loan types, and terms. Here are three suggestions.
#1. Monthly. Approximately 9 out of 10 lenders offer monthly insurance only. However, in my experience, this is NOT the best or cheapest option in most cases.
#2. Lender-paid mortgage insurance plans. In lender-paid mortgage insurance plans, mortgage insurance is built into the rate. You pay a higher rate, but you have no separate monthly mortgage insurance payment.
#3. Single premium mortgage insurance. With single premium mortgage insurance, you pay the mortgage insurance upfront in one lump sum, but at a drastically reduced price, typically saving you thousands of dollars in the process.
To summarize, if you know that you're not able to put 20% down and you need mortgage insurance, make sure you're asking your lender about the various mortgage insurance options.
*An important note: Certain loan types only offer monthly PMI/MIP.
Stay tuned to my blog for additional information and tips on securing a home loan!
Every year an average of 21 million people apply for mortgages in the US, and only around 7 million close. I'm on a mission is to change that by spreading mortgage education. Sign up for my newsletter to be a part of my Mortgage Peace Movement!