When is mortgage insurance required?

When is mortgage insurance required?

This is a question we get a lot, for those that don’t know, mortgage insurance is a monthly payment you make to a third party that protects the lender if you foreclose.

Depending on the type of loan you’re obtaining, that determines (in part) whether or not you need mortgage insurance. For example, if you’re obtaining an FHA loan, mortgage insurance is mandatory no matter how much you put down on the home. So you could put 50% down on a FHA mortgage and it requires mortgage insurance unfortunately.

Another type of loan is a conventional loan. This is a “standard loan” where the popular perception is that you have to put 20% down to qualify for a conventional loan. But that’s actually not true. You can put as little as 3% down on a conventional loan, but if you put less than 20% down on a conventional loan, mortgage insurance is required.

Now there are no mortgage insurance loans for a less than 20% down conventional loan, but it’s built into the interest rates. So you’re going to pay a higher rate of interest on the mortgage over time by not having that monthly mortgage insurance payment. That’s important to keep in mind because mortgage insurance on a conventional loan, you can cancel it after two years if you have 20% or more equity. Whereas with a FHA loan, it’s on the loan for the life of the loan if you put less than 10% down, and it’s canceled after 11 years if you put 10% or more down.

That’s just a little bit about how mortgage insurance works and when you’re going to need mortgage insurance. But if you have specific questions about your situation, how much your mortgage insurance payment might be, or how to get around it or have a lower mortgage insurance payment, just give us a call at 303-670-0137 or email our team at baxterteam@fairwaymc.com.