Whether you have a first time homebuyer or simply a client with limited funds for a home purchase, a common concern is mortgage insurance. This is particularly true with FHA financing, where monthly mortgage insurance premiums are high. Typically, mortgage insurance is a percentage of the loan amount, so naturally the higher the loan amount the higher the monthly cost.
So, what is mortgage insurance and why is it so expensive?
Mortgage Insurance is loan insurance, where the lender is protected from the client defaulting on the mortgage. A third party company provides it, and the client pays a monthly fee.
Mortgage insurance is required whenever a client finances more than 80% of their home. This is true for both a home purchase and a refinance. Lenders use the 80% equity usage as the line, and historically whenever more than 80% is financed the risk to the lender is considerably higher. That cost of the risk is then turned over to the consumer in the form of monthly payments.
FHA loans require mortgage insurance on every loan, and the premiums are the highest due to very low down payment allowances. VA loans also have mortgage insurance, but it is not required on every loan. Conventional lenders like banks also charge mortgage insurance once more than 80% of the market value(appraised value) is used.
So, are there alternatives and what do they look like?
There are several different options that do not require mortgage insurance cost is directly applied to the consumer. Conventional lenders have loan options where the mortgage insurance is paid by the lender, usually in return for a higher interest rate.
There are also some second mortgage or equity line lenders that allow financing up to 90% of the purchase price or refinance to 90% of the home value.
Summary
To learn more about these options, contact me directly for interest rate and payment comparison info.
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