Today is May 18, 2020 and this is my Monday Mortgage Update.
What is mortgage insurance and why do I have to pay it?
My name is Susan Jacobs and I am a realtor at Samson Properties in Gainesville VA. Today I would like to talk about “What is mortgage insurance and why do I have to pay it?” Mortgage insurance is protection for the bank just in case they need to foreclose on your mortgage.
If you are using conventional financing and put down less than 20% your loan will have mortgage insurance. Depending on your credit score and amount you are putting down will determine how much you pay in mortgage insurance. Example, if you have a credit score of say 680 with as little as 5% down you could be paying $400 or more per month in mortgage insurance. Verses having a credit score of say 750 with 15% down you could be looking at mortgage insurance in the $200 or less range.
There are a few things you can do to avoid paying mortgage insurance. One would be to do a 20-10-10 loan, you put down 10% and get a second mortgage of 10% making it a loan to value of 80/20. Or a 20-15-5. You put down 5% and get a second mortgage of 15%. Either way you can avoid paying MI
Second way you can eliminate the monthly payment, would be to pay the entire amount of mortgage insurance upfront to avoid having to pay it monthly. Depending on your credit score you could be looking at an upfront amount of say 1% of the loan amount or as much as 3% which would at that point my not be doable.
A third way would be lender paid. To achieve this the lender could raise the rate a small amount and have the lender pay the mortgage insurance up front.
On a conventional loans mortgage insurance can fall off once the loan to value has reach or exceeded 80% loan to value. Check with you lender about the process of elimination mortgage insurance.
FHA loans only require 3.5% down payment. The mortgage insurance is there for the life of the loan. Depending on your credit score and amount you put down will determine how much you pay. FHA mortgage insurance is usually much higher than a conventional loan, so be sure to check with you lender on what is your best option.
One last note, always if possible deal with a local mortgage loan officer verses on line. A lot of time they flash these teaser rates only to find out the cost to obtain the loan is a lot higher and the teaser rates are no longer available resulting in a higher monthly payment. Anytime you are finacing a home you should explore all types of financing options with your loan officer to find the one that is the best fit for you.
I hope this has helped you to understand What is mortgage insurance and why do you have to pay it? My name is Susan Jacobs with Samson Properties in Gainesville Va If you are thinking about buying or selling a home please give me a call. If you need the name and number of a local lender I can help with that as well. I can be reached at 703-347-4418 or firstname.lastname@example.org . I’m here to help with all of your real estate needs.
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