MORTGAGE INSURANCE EXPLAINED

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Mortgage Insurance – Do You Need It Even if It’s Not Required by Your Lender?

Finding a proper mortgage loan and understanding the processing procedures behind the loan is the basis of good research. The down payment on a mortgage loan is typically significant when dealing with mortgage insurance. Most loan applications with less than 20% down payment are required to include mortgage insurance with the loan. However, it may still be required even if it’s not typically required by your lender.

Underwriting Requirements

Most home mortgage applications undergo a strict set of standards for approval. These standards are known as underwriting and make up the bulk of time spent on a mortgage application. Unique situations in employment or credit history may require an additional down payment percentage to avoid PMI or private mortgage insurance. Most underwriting requirements require adequate information on the borrower’s credit and employment history for complete application. Self-employed individuals or those with alternative forms of credit may need a few additional hoops to jump through when dealing with these requirements.

Lender-paid Mortgage Insurance

Lender-paid mortgage insurance is a popular option with potential homeowners that seek to avoid the cost of a PMI or FHA-backed insurance on a home loan. Most lenders incorporate payment of private mortgage insurance in exchange for a slightly higher interest rate. This is one example of the points system on a mortgage application that eliminates the cost of PMI. The increase in interest rate may or may not warrant the need for a lender-paid mortgage insurance arrangement.

What’s Involved With Risk Assessment?

Strict lending requirements and banking policy now limit the number of mortgages with zero down payment options. Conventional mortgages and FHA both require PMI if it is less than 20% down payment. However, FHA loans can be more flexible with the initial down payment requirements with adequate credit. FHA mortgage costs are now for the life of the loan. Lenders will look at having this as risk protection.

The risk protection process may or may not require mortgage insurance in your home loan. For example, VA and USDA loans do not usually require it if the borrower’s credit and employment history are adequate. Conventional loans have a reduction in risk once there is at least 20% equity in the home compared to the principal of the mortgage. Don’t hesitate to contact a mortgage professional about potentially dropping mortgage insurance in the future to reduce overall loan costs. If you need a referral to a good mortgage professional in your area contact your trusted real estate agent for assistance.

Additional resources related to this post:

VA loan Information via Inlanta Mortgage

Financing Insights via Christopher Arienti

 

About the Author
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Shannon Holmes

Shannon Holmes has been featured in Bloomberg BusinessWeek, as well as many other media platforms, for her real estate expertise. Shannon loves new technology, and is an expert at using that technology to have the most effective real estate marketing possible. Shannon services the Greater Birmingham Alabama areas of the Highway 280 Corridor, Mountain Brook, Hoover, Vestavia Hills, Homewood, Chelsea, Helena, Pelham, and Alabaster. Shannon can be reached at (205) 706-3975, or by email at shholmes@realtysouth.com.

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