You will have to have mortgage insurance if you fail to come up with a down payment that is at least 20 percent of the sale price of the home you wish to buy. This insurance can be called by several different names such as private mortgage insurance or even simply PMI. It is called these in order for people to be able to tell that it is something different from FHA or even VA insurance. The latter couple are government sponsored programs whereas private mortgage insurance is not. The amount of money that you have to pay towards mortgage insurance will depend mostly on the amount of money that you have borrowed and the size of the down payment that you have to put down on the house. In most cases you will be paying a half of a percent of the entire loan. Mortgage insurance is like any other insurance there is a person who pays the premiums, that is you, and a beneficiary, which is the lender. This insurance is there for two reasons: one to make sure that the debt is covered if you default and two, to make sure that if something were to happen to you, like death for instance, they would still be able to get their money back. This insurance is the only way that the lender can be sure that no matter what they will get the money that they lent out back from you. There are different ways in which you can pay your mortgage insurance. Generally the premiums are paid each month along with your mortgage payment but in some cases you will have the option of paying the whole of your premiums at one time, at closing. You will not get to choose the lender that you want to work with for your mortgage insurance in most cases, the lender will do that part for you. All you get to do is pay the payments. Many people cannot afford to pay the entire 20 percent as a down payment and that is why so many homebuyers choose to get mortgage insurance instead. Once you have enough equity in your home you will not have to continue to pay the mortgage insurance but it can at time take years to get to this point. It is however important that you keep track of how much equity that you have so that you can make sure that these mortgage payments get cancelled when they can in order to save you some money each month. There are lenders out there that will waive the mortgage insurance but in order for them to do this you will have to be paying more in interest. A higher interest rate could mean that you are paying more than you would if you had paid for the insurance. But on the other hand the interest can be deducted for your taxes and mortgage insurance cannot be. Another way to avoid mortgage insurance is to get an 80-10-10 loan. In this type of deal you will have to get two loans rather than just the one. The first is for 80 percent of the sale price of the home while the second is for 10 percent. Then all you have to come up with is 10 percent to use as a down payment. This can save you money but it is slightly more complicated. |
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