Mortgage insurance has a bad reputation in the mortgage industry and some people obtaining a home loan will do everything they can to avoid paying it. However, on the upside mortgage insurance serves the very significant purpose of offering the ability to purchase a home to everyone, not just the super wealthy.
Mortgage insurance is essentially an insurance policy for the lender or government entity that is holding your mortgage. It protects them in case of borrower default and allows them security when lending to borrowers that are bringing less than a 20% down payment. This is the silver lining of Private Mortgage Insurance (PMI), is that it allows loan programs with low to zero down payment required and 800+ credit scores are not required.
Different loan program handle mortgage insurance differently. FHA for instance has both monthly and upfront payment for their mortgage insurance, but is based on a flat percentage of the loan amount not on the borrowers qualification or credit score. FHA is also the same for all borrowers (1.75% Upfront and 0.85% monthly) and remains active for the life of the loan, regardless of how far the loan is paid down.
Conventional loans on the other hand heavily consider the borrower’s qualifications and credit score when determining the PMI rate. They also cancel the MI once you have reached 80% Loan-to-Value (LTV) and give you options on whether you would like to pay upfront or monthly, not both. Whether to pay upfront or monthly depends greatly on your situation and your goals. A VanDyk Home Loan Advisory will certainly help you make this determination.