Unlike other forms of insurance you might buy, mortgage insurance doesn’t protect you; it protects your lender.
However, that doesn’t mean it may not be to your benefit. Mortgage insurance reduces the risk to the lender, meaning you may be able to qualify for a loan with less than 20 percent of the home’s purchase price serving as a down payment. (It’s always best to talk to your lender about private mortgage insurance; we’re not financial professionals, so this shouldn’t be taken as financial advice.)
Less Money Down?
Typically, lenders will require mortgage insurance when you are making a down payment of less than 20 percent of the purchase price of the home or land.
This protects your lender from losses if they should have to foreclose and sell the property for less than the amount you borrowed.
The benefit to you, the buyer, is that you may be able to purchase a home if you have less than 20 percent of the home’s price saved for a down payment.
Different lenders offer different options, but in many cases, the cost of the insurance premiums are rolled into the monthly mortgage payment.
Types of Mortgage Insurance
Lenders commonly offer a conventional loan and arrange for private mortgage insurance, or PMI. Certain government loans include mortgage insurance as part of the program.
One exception is a VA loan. If you’re a veteran of the U.S. Armed Forces and you qualify for a VA loan, you don’t have to come up with a 20 percent down payment — and you aren’t required to pay private mortgage insurance premiums.
Your Realtor® can refer you to a lender who is well suited to your needs.
Who Can Benefit From Mortgage Insurance?
Anyone who can afford a slightly higher monthly payment but has little savings may benefit from choosing an insured mortgage. Young people, veterans and first-time buyers often decide to purchase their homes in this way.
Again, though, it’s best to talk to your lender (or better yet, several lenders) to determine whether private mortgage insurance would be right for you.
