You’ve found it – the perfect home. You’ve set your heart on it, and you’re already decorating each room in your mind with your things. You set off to your mortgage lender, who informs you that you don’t qualify for the loan required to buy that home.
What do you do?
Instead of giving up and moving on, consider mortgage insurance. Mortgage insurance adds extra insurance for your lender. It helps you qualify for a loan you wouldn’t normally be able to receive so that you can get into that dream home.
- Is usually required on an FHA or USDA loan
- Is usually required if the home buyer puts less than 20 percent down
- Can be paid at closing
- Can be added to your monthly mortgage payment
As there are many different types of loans, there are also different ways to pay for mortgage insurance.
If you’re applying for a Federal Housing Administration (FHA) loan, then a mortgage insurance premium (MIP) is typically required, and you pay it directly to the Federal Housing Administration. Mortgage insurance attached to an FHA loan does not discriminate – it’s the same rate for everyone. It’s only a little higher for people who put less than five percent down. You are required to pay both an upfront premium of 1.75 percent of your FHA loan amount and an annual premium that is divided up into your monthly mortgage payments. The amount of the annual premium varies based on the length of the loan and other factors.
Veterans’ Affairs (VA) loans typically come with a VA Home Loan Guaranty which is essentially the VA’s version of mortgage insurance. Through the VA Home Loan Guaranty, the VA guarantees a portion of your home loan, which in turn protects your mortgage lender. As a VA loan requires no down payment or traditional mortgage insurance, borrowers have to pay a funding fee (paid at closing). This fee was put in place to reduce taxpayers’ cost and cover costs for the VA on the few loans that default. Those individuals who receive disability compensation (or those who are eligible) for service-related disability are exempt from the funding fee.
The fee for mortgage insurance on a United States Department of Agriculture (USDA) loan is much lower than on an FHA loan, and it is called an upfront premium. You can add the fee for mortgage insurance into your overall mortgage payments, pay everything at closing or pay some at closing and add the other to your monthly mortgage.
A conventional (otherwise known as conforming) loan may require private mortgage insurance (PMI). As stated before, many mortgage lenders will not approve a borrower who is putting less than 20 percent down. The nearer that the borrower gets to putting down that 20 percent, however, the lower the PMI monthly payment will be. PMI rates can range anywhere from .5 percent to around 2 percent.
If home-buying and everything that comes with it is new to you, this may be a lot to take in. Our diligent team at First Lenders is ready to walk you through the entire process and answer any questions you may have. Click below to contact us!