For many homebuyers, the biggest hurdle to owning a home is the down payment. Private mortgage insurance, or private MI, can allow you to purchase a home with less down than what otherwise may be required.
Lenders and investors typically require mortgage insurance for loans with down payments of less than 20%. MI provides lenders a financial guaranty should a loan go into foreclosure. It is this guaranty that allows many lenders not to require a 20% down payment when making home loans.
Here's how it generally works:
While MI provides an obvious benefit to lenders, many times homebuyers will overlook the benefits MI affords them. These can be significant and may include:
With this option, the premium amount is paid along with your monthly mortgage payment. Your MI coverage can usually be cancelled once your loan amount falls to 78-80% of your home's value.
Borrowers also have the option of paying the MI premium in one lump sum at closing and making no monthly MI payments.
Lender-Paid Mortgage Insurance
As the name suggests, with Lender-Paid MI, your lender pays the MI premium and not you. However, to cover the cost of the premium, your lender may increase the loan fees or the interest rate.
The important thing to remember is that mortgage insurance gives you options. Buying a home is one of the biggest financial decisions you may ever make. You want to go into that decision knowing all your options. Feel free to call to review your specific situation.
-The Kavanewsky TeamShare on Twitter Share on Facebook