Mortgage insurance is a policy that protects lenders against some or most of the losses that result from defaults on home mortgages. it's required primarily for borrowers making a down payment of less than 20%.
How does mortgage insurance work? Is it like
home or auto insurance?
Like home or auto insurance, mortgage insurance requires payment
of a premium, is for protection against loss, and is used in the
event of an emergency. If a borrower can't repay an insured
mortgage loan as agreed, the lender may foreclose on the property
and file a claim with the mortgage insurer for some or most of the
total losses.
Do I need mortgage insurance? How do I get t?
You need mortgage insurance only if you plan to make a down
payment of less than 20% of the purchase price of the home. The
FHA offers several loan programs that may meet your needs. Ask
your lender for details.
How can I receive a discount on the FHA intial mortgage
insurance premium?
Ask your real estate agent or lender for information on the HELP
program from the FHA. HELP - Homebuyer Education Learning Program
- is structured to help people like you begin the homebuying
process. It covers such topics as budgeting, finding a home,
getting a loan, and home maintenance. In most cases, completion of
this program may entitle you to a reduction in the initial FHA
mortgage insurance premium from 2.25% to 1.75% of the purchase
price of your new home.
What is PMI?
PMI stands for Private Mortgage Insurance or Insurer. These are
privately-owned companies that provide mortgage insurance. They
offer both standard and special affordable programs for borrowers.
These companies provide guidelines to lenders that detail the
types of loans they will insure. Lenders use these guidelines to
determine borrower eligibility. PMI's usually have stricter
qualifying ratios and larger down payment requirements than the
FHA, but their premiums are often lower and they insure loans that
exceed the FHA limit.