Mortgage insurance is an insurance that is used to protect a lender from loss on a home loan. Traditionally, mortgage insurance is required on all Conventional loans with less than a 20% down payment and all FHA loans, regardless of down payment.
However, whether you currently have a loan with mortgage insurance or are looking to purchase a home and don’t have a 20% down payment, there are ways to avoid monthly mortgage insurance payments.
The Usual Ways To Avoid Mortgage Insurance
Mortgage insurance can be avoided all together if you make a 20% down payment on a conventional loan or use a VA loan (if eligible), to purchase a home.
In addition, if you have 20% equity in your current home and have a conventional loan, you can either go back to your existing lender and ask them to remove your mortgage insurance or refinance into a new conventional loan without mortgage insurance.
But what if neither of these scenarios apply to you?
Lender Paid Mortgage Insurance
For conventional loans, mortgage insurance is rated in 5% increments, in that the most expensive mortgage insurance costs occur when you put a 5% down payment or have 5% equity in your home, then the cost decreases when you put a 10% down payment or have 10% equity and then again if you make a 15% down payment or have 15% equity.
However, by using lender paid mortgage insurance, you may obtain a loan without a monthly mortgage insurance payment.
In general, with a small adjustment to your interest rate, you can take a new loan without monthly mortgage insurance, as that small adjustment in rate is used to purchase a lender paid mortgage insurance policy.
The actual adjustment to your interest rate will vary based on the amount of your down payment or equity in your home and credit score, but for someone with good credit, the lender paid mortgage insurance almost always results in a lower monthly payment, then a loan with a slightly lower interest rate and monthly mortgage insurance.
What About FHA Loans:
If your current FHA loan was taken out prior to June 2013, then you may be able to have your FHA mortgage insurance removed, once you have had your FHA loan for five years and paid your loan balance down to 78% of the most recent appraised value of your home (the value when you took out your current home loan).
For everyone else with an FHA home loan, the only way to get rid of mortgage insurance is to refinance to a conventional home loan. The good news however, is that the same rules apply as listed above, in that you don’t necessarily need 20% equity to remove or reduce your monthly mortgage insurance payment.
As always, it makes sense to speak to a licensed lender, such as Strategic Mortgage to fully qualify and see what home loan options are available to meet your specific situation.
For more information on current home loan programs and options for existing and potential home owners, please contact Bill Kamboukos of Strategic Mortgage at (480) 219-3682 or by emailing: email@example.com or online at www.strategicmtgaz.com
Strategic Mortgage, LLC - NMLS#158804- Equal Housing Lender – AZBK#0909514
Vasilios Bill Kamboukos Jr – NMLS#160440