What is Mortgage Insurance and Why Do I Need It?

by JoAnn Young - Owner / Broker People's First Financial Services, Melbourne, FL

Mortgage Insurance,  MI  or Private Mortgage Insurance (PMI)  is insurance that a borrower pays that protects a lender in the event of a default on a mortgage note. For a conventional loan, lenders require a 20% down payment in order for a buyer or homeowner to avoid paying for mortgage insurance.

There are various premiums of mortgage insurance for different amounts of amount financed.  For instance, 95% financing would rerequire more coverage than 85% financing.  Thus the premium would also be more costly.

Mortgage Insurance can be paid in many different ways.  Currently, we have three different methods with one our lenders in which mortgage insurance can be paid.
1.  Monthly
2.  Rolled on top of the loan amount and financed in to the loan
3.  Lump sum payment based on the loan amount.

Mortgage Insurance premiums are also determined by credit score so keeping a good credit rating and score is vital.

FHA (Federal Housing Administration) is another form of financing that requires Mortgage Insurance.  The amount for FHA is considerably different than Conventional and is called Mortgage Insurance Premium or MIP.  FHA will allow a buyer to finance a home up to 96.5%.  The mortgage insurance premium for that amount is higher than Conventional and backed by the government.  FHA requires a "rolled on top" of the loan mortgage insurance also known as "Up Front MIP"  and a monthly premium amount as well.  A portion of the rolled in mortgage insurance may be refunded after the loan is terminated.

If you have questions about mortgage insurance or want to know which loan option works better for your scenario, Call JoAnn Young for more information.  321-243-4917.  People's First Financial Services, Melbourne, FL .