What is mortgage insurance?

What is Mortgage Insurance - The Tuttle Group

What is Mortgage Insurance - The Tuttle GroupWhen looking for a home loan, there are several options available. In general, most lenders want at least 20% of the home’s value as a down payment. If the borrower doesn’t want to or is unable to put that much money down, they will need to get mortgage insurance.

What Is Mortgage Insurance?

Mortgage insurance is designed to help protect the lender if the borrower defaults on the house payment. For those who have less to spend on a down payment or would rather keep the money for furnishings, remodels, or repairs to the house, they can opt for it instead of coming up with the normal 20% down payment. Keep in mind, while getting it can help the homeowner with a lower down payment, there are fees connected with it.

How Long Does Mortgage Insurance Last?

In general, the borrower can ask the lender to eliminate the monthly payments for it when the loan-to-value (LTV) ratio falls below 80%. As long as the borrower is current on their monthly mortgage payments, the lender will automatically drop the monthly mortgage insurance payments when the LTV drops below 78%. Dropping the mortgage insurance is required by the lender under the Federal Homeowners Protection Ac. This is great news for the borrower as now they only need to pay their monthly mortgage payments.

What Types of Loans Can I Get?

The three main types of loans that require mortgage insurance with a low down payment include:

Conventional Loan

For a conventional loan, the lender will require the borrower to pay for some type of private mortgage insurance if the down payment is under 20%. It’s easy to figure out what a monthly private mortgage insurance rate will look like when using a mortgage insurance calculator. Having this information can help the borrower budget for the monthly mortgage and mortgage insurance payments.

Federal Housing Administration Loan

A Federal Housing Administration (FHA) loan insures the loan so the lender can offer the borrower an affordable loan to the borrower. With this type of loan, the borrower can put down as little as 3.5% as the down payment. However, this loan requires the borrower to pay for an upfront mortgage insurance premium as well as an annual premium. Mortgage insurance with an FHA loan carries through the life of the loan.

United States Department of Agriculture Loan

A United States Department of Agriculture (USDA) loan is designed to help people with a modest income living in a rural area get a home. While this zero-down-payment loan can help someone buy a home, the borrower must pay an upfront mortgage insurance fee as well as an annual premium for the life of the loan.

The Tuttle Group is one of the premier mortgage lenders in the Dallas, Texas, area. The main vision of The Tuttle Group is to help homeowners, whether they’re first-time buyers or homeowners looking to refinance their existing home, find a home loan that feels comfortable for their budget. Our team at The Tuttle Group is available to help people find the perfect home loan.

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