Mortgage insurance is required in the United States for all borrowers who have paid less than 20% of their home’s down payment. This is a coverage that is paid for by the borrower, but it only protects the lender. It insures the lender in case the borrower makes any faults on their payments.
As your local Oakland mortgage lender, our team has provided an explanation below on the different types of mortgage insurance.
- Private Mortgage Insurance (PMI): This mortgage insurance is required for any conventional loan that follows the Fannie Mae and Freddie Mac guidelines. Your lender wants evidence that you are financially capable of taking on a mortgage. The more money you have saved, the more comfortable they will feel knowing you are less likely to fault on your payments. If you have a conventional loan but cannot pay at least 20% of the down payment, PMI will ensure that a mortgage lender will still work with you. It can also help you qualify for a loan that you might not have been able to get without the insurance.
PMI is typically a premium that is added to your monthly costs, however, it can also be a lump sum, one-time payment—or it can be both. Talk with your Oakland mortgage broker today to see if private mortgage insurance is a good option for you.
- Mortgage Insurance Premium (MIP): This insurance is for government issued FHA loans. An FHA loan would be a good option for you if you can only pay a small amount of your home’s down payment. The major difference that separates MIP and PMI is that for FHA loans, MIP is always required because the down payment is only 3.5%. Not everyone with a conventional loan is required to get PMI.
If you get an FHA loan whose ‘lifespan’ is over 15 years, you will no longer have to pay mortgage insurance once your loan-to-value (LTV) ratio is at least 78%. If your loan is term less than 15 years, your MIP will be cancelled once your LTV is 90%.
Figuring out whether you need mortgage insurance on a conventional or an FHA loan can help you appropriately budget. Talk with a lender today for any questions you might have. Here at EstaR Mortgage, we provide the best Oakland and Alameda mortgage on the market. Contact us at 510-463-1003 or Mylender@estarmortgage.com to get started.