The Ins and Outs of Home Mortgage Insurance

When buying a home it’s important to understand the basics of mortgage insurance.

What is it? How does it work? What does it mean to you as a home buyer or homeowner?

First, mortgage insurance is taken out by the lender to provide protection against you defaulting on your mortgage. However, you usually pay the premiums on this insurance each month, as opposed to your lender paying them.

When most people think of mortgage insurance they think of it on a property that’s being purchased or refinanced where there’s less than 20% equity. This is true for conventional mortgages but slightly different for Federal Housing Administration (FHA) mortgages.

On conventional mortgages, the monthly premium will vary based on factors such as down payment, credit score, etc.

Borrowers with riskier credit and a lower down payment will pay more than someone with great credit and a larger down payment will.

If you get an FHA loan, the mortgage insurance works slightly differently. In addition to the monthly premium that is in place – as is the case with conventional mortgages – there is also an up-front premium. This premium can be financed into the loan itself.

Most FHA mortgages, regardless of the down payment, require both up-front and monthly mortgage insurance.

While insurance for FHA mortgages is a bit pricier than for a conventional mortgage, there are two advantages to the FHA mortgage borrower.

The first is that the credit requirements for insurance for FHA mortgages are more lax than they are with conventional mortgages.

The second is that a buyer can often put down less money on a home with an FHA mortgage and still qualify.

Ask your mortgage professional for more details.