Insurance for Mortgage: Protecting Your Investment

Buying a home is one of the biggest investments a person can make in their lifetime. And with that investment comes the responsibility of protecting it. That’s where mortgage insurance comes in.

What is Mortgage Insurance?

Mortgage insurance, also known as mortgage protection insurance or MPI, is a type of insurance that protects the lender in case the borrower defaults on their loan. This insurance is usually required if the borrower’s down payment is less than 20% of the home’s value.

There are two types of mortgage insurance: private mortgage insurance (PMI) and government mortgage insurance. PMI is provided by private insurers, while government mortgage insurance is provided by the Federal Housing Administration (FHA), Department of Veterans Affairs (VA), and the Department of Agriculture (USDA).

Private Mortgage Insurance (PMI)

PMI is typically required for conventional loans where the borrower’s down payment is less than 20% of the home’s value. The cost of PMI varies depending on the size of the down payment and the loan amount. PMI can be paid monthly or as a lump sum at closing.

The cost of PMI is usually between 0.3% and 1.5% of the original loan amount per year. For example, if you have a $200,000 loan with a 0.5% PMI rate, you would pay $1,000 per year, or $83.33 per month.

If you have a conventional loan with PMI, your PMI payments will automatically stop once you’ve paid off 22% of the loan, or if you refinance your loan and have more than 20% equity in the home.

Government Mortgage Insurance

Government mortgage insurance is provided by the FHA, VA, and USDA. These programs offer mortgage insurance to borrowers who may not qualify for conventional loans or who cannot afford a large down payment.

FHA Mortgage Insurance

FHA mortgage insurance is required for all FHA loans. The cost of FHA mortgage insurance varies depending on the size of the down payment and the loan amount. FHA mortgage insurance can be paid upfront or as part of your monthly mortgage payment.

If you have an FHA loan and put down less than 10%, your mortgage insurance will last for the life of the loan. If you put down more than 10%, your mortgage insurance will last for 11 years.

VA Mortgage Insurance

VA mortgage insurance, also known as a funding fee, is required for all VA loans. The cost of VA mortgage insurance varies depending on the size of the down payment and whether this is your first or subsequent VA loan. VA mortgage insurance can be paid upfront or rolled into your loan.

If you have a VA loan and are a disabled veteran, you may be eligible for a waiver of the funding fee.

USDA Mortgage Insurance

USDA mortgage insurance, also known as a guarantee fee, is required for all USDA loans. The cost of USDA mortgage insurance varies depending on the size of the down payment and the loan amount. USDA mortgage insurance can be paid upfront or rolled into your loan.

If you have a USDA loan, your mortgage insurance will last for the life of the loan.

Do You Need Mortgage Insurance?

If you’re buying a home with less than 20% down, you will likely need mortgage insurance. However, if you have a VA loan or are eligible for a USDA loan and have no down payment, you may not need mortgage insurance.

Keep in mind that mortgage insurance protects the lender, not the borrower. If you default on your loan, the insurance will pay the lender, but you will still lose your home.

How to Get Mortgage Insurance

If you need mortgage insurance, you can usually get it through your lender. Your lender will help you choose the type of mortgage insurance that’s right for you and will include the cost of the insurance in your monthly mortgage payment.

Be sure to shop around for the best rates and terms when it comes to mortgage insurance. And remember, once you’ve paid off 22% of your loan or have more than 20% equity in your home, you can ask your lender to cancel your mortgage insurance.

Conclusion

Mortgage insurance is an important component of buying a home. It protects the lender in case the borrower defaults on their loan and can help borrowers who may not be able to afford a large down payment. If you’re buying a home with less than 20% down, be sure to talk to your lender about your mortgage insurance options.

FAQ

What is mortgage insurance?

Mortgage insurance is a type of insurance that protects the lender in case the borrower defaults on their loan. It is usually required if the borrower’s down payment is less than 20% of the home’s value.

What types of mortgage insurance are there?

There are two types of mortgage insurance: private mortgage insurance (PMI) and government mortgage insurance. PMI is provided by private insurers, while government mortgage insurance is provided by the FHA, VA, and USDA.

Do I need mortgage insurance?

If you’re buying a home with less than 20% down, you will likely need mortgage insurance. However, if you have a VA loan or are eligible for a USDA loan and have no down payment, you may not need mortgage insurance.

How do I get mortgage insurance?

If you need mortgage insurance, you can usually get it through your lender. Your lender will help you choose the type of mortgage insurance that’s right for you and will include the cost of the insurance in your monthly mortgage payment.

What happens if I default on my loan?

If you default on your loan, the insurance will pay the lender, but you will still lose your home.