What is Mortgage Insurance? Mortgage insurance, or commonlyreferred to as MI, is a lender's protection against foreclosure by a buyer. Ittypically comes into play when a buyer puts less than 20% down on a home and itis important to factor in when purchasing a home since it can have significantimpact on monthly payments. Below are three types of mortgage insurance youtypically see. It is best to speak with a mortgage professional to determinewhich type makes the most sense for you and see if there are even ways to avoidit in general. Yet another good reason to get prequalified before starting tolook at homes.
The three types of mortgage insurance.
1)Conventional œMI This form of MI can be paidmonthly or all upfront. It typically hasa lower monthly premium than the other two types of MI. However, credit andincome requirements are more stringent for conventional MI. The biggestadvantage is that MI can be removed once the buyer pays the home down to 78% ofthe original sales price or the home appraises high enough to show 20% equityin the property.
2)FHA MIP FHA Mortgage Insurance Premium isequal to 1% of the loan amount plus a monthly premium. The benefits are thatincome requirements are relaxed and there is more flexibility in credit scores,much along the lines of FHA. The monthly premium is typically the highest ofthe three and you cannot have the premium removed with an appraisal. Theprincipal of the loan must be paid down to 78% and you must pay the MIP for aminimum of 5 years.
3)USDA Guarantee Fee Guarantee fee is 2% of theloan amount plus a monthly premium. The premium is typically that of FHA MIPbut there are specific geographic and income eligibility requirements that aremuch tougher than FHA. This premium stays with the loan and can never bedropped off.
Socials