What is mortgage insurance?
It is insurance required by and benefiting the LENDER, in case the borrower gets behind making the mortgage payments. The borrower cannot make a claim on it and it will not protect the borrower from a lower credit score OR foreclosure.
Why do I have to pay it?
Lenders require it to reduce their risks when loaning money. Certain types of loans require it, such as Federal Housing Authority (“FHA”), United States Department of Agriculture (“USDA”), and Veteran’s Administration (“VA”) loans. Lenders usually require it for conventional loans if the borrower makes a down payment of less than 20% of the purchase price OR if the borrower has less than 20% equity in the home when refinancing.
Can I avoid paying mortgage insurance?
Probably. It depends on the type of loan you obtain, the amount of money you put down to purchase a home and the amount of equity you have in the home you are refinancing. Some lenders will propose alternative loan scenarios to help you avoid paying mortgage insurance. Make sure to compare all the alternatives by requesting the lender to show you the bottom lines of each. The alternative requiring mortgage insurance may be the best deal overall.
How can I avoid paying it or pay the least amount possible?
1. Seek a loan that doesn’t require mortgage insurance;
2. Put down more than 20 % of the purchase price of the home OR accumulate more than 20% equity in the home;
3. Be aware of the terms of mortgage insurance, so you know whether the required monthly payment drops on its own on a certain date OR whether you are required to refinance the loan to drop the mortgage insurance payment.
How can I get more information about mortgage insurance?
Go to the following link to the Consumer Financial Protection Bureau (“CFPB”), a governmental agency educating and protecting consumers engaged in financial transactions in which they may find themselves needing protection from unfair, deceptive or abusive practices. The CFPB educates consumers regarding financial transactions and provides them resources to get help when they need it. https://www.consumerfinance.gov