Today, there are plenty of options available for borrowers who have little or no cash to use for a down payment on the purchase of their home.
While these mortgage loan options have made it possible for many people to finally achieve their dream of owning their own home, they do come with certain requirements which may include mortgage insurance.
When lenders are providing such large amounts of funds to individuals who are not putting much down, they want to protect themselves in case of a worst-case scenario. Mortgage insurance is a way for them to do just that. This type of insurance policy is paid to lenders as compensation for the additional risk of default they are taking on by lending a larger loan amount.
The typical cut-off to make mortgage insurance a requirement is a down payment below 20% of the value of the home you are purchasing. This means that if you plan to borrower more than 80% of the home value, you should also plan on being required to obtain a mortgage insurance policy.
There are different mortgage insurance rates, which are calculated based on many different factors. Once your insurance premium is set, you may choose to pay it in a few different ways – monthly, annually, or as a lump sum.
The good news about mortgage insurance is that, in most cases, once you have paid off a certain portion of your principal balance, you may no longer be required to hold a mortgage insurance policy. At this point, you will be able to cancel your policy and start saving the money you were previously paying towards your insurance premium.
Even with the addition of mortgage insurance, many of these low down payment loan options are still great tools that can be used to your advantage when it comes to purchasing your home.
Give me a call today to discuss your home financing options and let me help you find the perfect mortgage!