Mortgage Insurance?

What is mortgage insurance? Some people are under the impression that it's an insurance that will pay off your mortgage in case of an emergency. This is the wrong impression. Many years ago consumers could not purchase a home with no money down. Often times a down payment was a gift from friends or family. It was too risky per investors. Over time investors began to realize that there was a market for no money down loans. How would they manage the risk? Mortgage insurance. On a conventional loan you are required to pay mortgage insurance if your Loan to Value (see previous blog post) is over 80%. If you default on your loan the mortgage insurance protects the investor not the home owner. Many brokers and bankers will do 80% loan to value on one loan and write a second mortgage on your home for the other 20%. This will keep the buyer from paying monthly mortgage insurance premiums. Beware of FHA mortgage insurance. The premium is less than a conventional loan, but you are required to pay mortgage insurance for five years regardless of your homes appreciation of if you pay the balance down below 80% loan to value. We will discuss 80/20 loans tomorrow. Until then happy buying and selling!