Mortgage Insurance – What Is It And Why Do You Need It?
to Buy a house, you need a down payment of 20 percent of the price.
However, what If you do not have the money for the down payment? There are several options. One of these options is private mortgage insurance.
There are other options too, but let me tell you this first:
These days due to the state of the economy it is getting harder and harder actually to own a home. Home ownership is at the heart of the American dream, and no one who truly wants it and is willing to work for it should be denied from having it.
What do you do if homeownership seems out of reach though? Here are a few suggestions:
- Try to find someone to cosign on loan for you
Getting someone to cosign a loan with you can backfire if that person experiences any sort of problems.
- Work extra hours to gain access to home ownership
Working extra hours or trying to take on another job can be tough on you physically, emotionally and otherwise. Plus there’s always the chance you might not be able to get those extra hours of finding a second/third job.
- Rely on a dual income as many people do
A dual income seems like it would work, but what if one of you gets sick and seriously hurt? Then what happens.
- Focus on a home that’s cheap and affordable
Moreover, trying to go with a home that’s cheap and affordable puts you in a position where you might be in a higher crime area, with bad schools. It is just not the way to go.
Every one of the above seems plausible, but there’s a fatal flaw to each of them.
Understand that the America dream can still be attained. You just have to be willing to consider all the options open to you.
The best option is mortgage insurance.
Some people say PMI is a bad thing, but in most case, it is not. It gives access to homeownership to people who would otherwise never be able to come up with the initial down payment but are hard working.
Think about it: A good neighborhood, good schools, and low crime are highly valued!
What we want to do is educate people who might have the wrong idea about PMI so that they can look at it for what it is. Mortgage insurance is a valuable tool for people who still believe in the American dream, despite what the economy says.
What is mortgage insurance?
Private mortgage insurance is set up by a lender, and different insurance companies provide it. It is a requirement when someone gets a loan and has a down payment that’s less than the conventional 20% that’s required.
The 20% is towards the total purchase price of the home someone is looking to purchase.
Understand that the primary purpose of mortgage insurance is to protect the lender and not necessarily the borrower. It protects the lender in the case of a loss should a borrower default on their loan.
There are typically three different forms of mortgage insurance:
- Borrower paid
The Borrower will pay a certain premium each month until the lender cancels the insurance or canceled by you.
- Single premium mortgage insurance
The Borrower pays the premium in one big lump sum and gets rid of the need for a monthly payment
- Lender paid
The lender will pay the cost of the insurance for the borrower, which can lead to lower payments each month on the mortgage overall. The only downside is a borrower can end up paying more interest overall over the duration of a loan.
Why is it important to have mortgage insurance?
You have to look at this from a pragmatic standpoint. Mortgage insurance can allow you to purchase a beautiful home sooner than what you could have otherwise. You will have much higher purchasing power as well. This means if you already had 20% of a home’s value saved up, then mortgage insurance will enable you to get a better home.
You also won’t tie up all the money you might have on hand. Think of it this way. If you use this form of insurance, then you will have more cash on hand to use for other purposes such as paying off debts you might owe, making improvements to the house you want once you get into it or even other investments.
Do you really need mortgage insurance?
Having mortgage insurance is about more than being able to gain access to a home or a better home. Just think about this. What if you experience some form of disability? What about if you were to die? What if you were to lose your job? Mortgage insurance (assuming you get the right form of coverage for these instances) then the policy would pay your mortgage if you were to suffer a disability, suffer a job loss or even die.
In the worst case scenario, should you die the insurance company would just pay off the mortgage company.
This means the people are living in that home currently wouldn’t be affected by the mortgage. In the case of job loss or disability, a policy can pay directly to the mortgage company, but only for a specific time period. Also, there tends to be a waiting period required before the payments were to start.
Understand that if a borrower does not put down at least 20 percent of a home purchase, then they must by federal law get private mortgage insurance. Mortgage insurance itself protects against additional things such as disability, job loss or even death. PMI tends to focus on paying back a bank if a borrower defaults and goes through foreclosure.
Where can you find the best mortgage insurance coverage?
The best way to go about finding good mortgage insurance coverage is to go to comparison website or free quote websites. If you are unsure of this, then you can speak with the lender you are going through to purchase your home. The focus does not have to be so much on the particular provider of the coverage, but the quality of coverage.
When is mortgage insurance typically required?
“It is a requirement when someone gets a loan and has a down payment that’s less than the conventional 20% that’s required. The 20% is towards the total purchase price of the home someone is looking to purchase. ” link to the middle of the text.