What Is Mortgage Insurance?


Mortgage Insurance is the key that opens doors to...

Less Down Payment...
It reduces the down payment required to as little as 3% of the purchase price of the home; therefore enabling the home buyer to purchase a home or to purchase one larger than could have been otherwise.

More Money for Key Purchases...
A smaller down payment makes it easier to cover start-up costs of a new home such as furniture and draperies.

Greater Tax Advantage...
With the current tax system, it can give greater tax deductibility to home buyers with high loan-to-value mortgages.

Quicker Loan Closing...
It allows home buyers to close their loans sooner than with most government loan programs.

Less Expense...
It is less expensive than government loan programs.
What Is Mortgage Insurance?

Mortgage insurance assists home buyers in purchasing a home for less money down byprotecting the lender in the event the home owner does not make the mortgage payments.

Traditionally, mortgage lenders require a down payment of 20% because the risk on nonpayment is very low with this level of investment. However, since mortgage insurance insures this risk, lenders will accept mortgage loans with a smaller down payment, often as low as 3% of the home price.

Mortgage insurance should not be confused with other forms of insurance such as title insurance, credit life, mortgage life or homeowner's insurance.

How Does Mortgage Insurance Work?

The mortgage insurer shares the risk of foreclosure with the lender. If a borrower stops paying their mortgage payment, the mortgage lender must obtain title to the property that secured the loan. This usually involves time and money.

If the property cannot be sold for the amount equal to the lender's total investment, then the lender faces a loss. If the lender has mortgage insurance, the insurer will either pay the lender a specified amount of money or take title to the property, thus reducing or eliminating the lender's loss.

What is the difference between conventional mortgage insurance
and government insurance programs?

Although government and conventional insurance programs are based on the same premise of allowing buyers to purchase a home with less down payment, there are many differences between them.

Conventional insurance is commonly known as Private Mortgage Insurance (PMI), Federal Housing Administration (FHA) insurance is referred to as Mortgage Insurance Premium (MIP) and Veteran Administrations (VA) insurance is called a Funding Fee.

Private Mortgage Insurance (PMI) in generally required on conventional loans that have a loanŠto-value greater than 80%. When the home buyer has obtained 20% equity in the home PMI is no longer required. Mortgage Insurance Premium (MIP) and a Funding Fee are required on al lFHA and VA loans.

If the home buyer has an adequate down payment, conventional mortgage insurance has the following benefits:

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