Depending on the type of loan you obtain when buying a home, one of the expenses you will incur is for private mortgage insurance (PMI) if you put less than 20% down. This is different than homeowners insurance. This is insurance on your mortgage that covers the lender should you default on your loan.
Different loan types have different requirements for whether mortgage insurance will be charged or not. Commonly most loan programs follow these guidelines:
- FHA loans: Require mortgage insurance to be paid up front (UFMIP) as well as monthly (MI) if equity is less than 20 percent.
- Conventional loans: Require mortgage insurance if equity is less than 20 percent.
- VA loans: Do not require mortgage insurance.
- USDA loans: Do not require mortgage insurance.
Occasionally you may encounter an offer of “lender paid mortgage insurance” where the lender agrees to pay your mortgage insurance in exchange for a higher interest rate. Normally, when the lender pays the premium it will make a one-time payment to the mortgage insurance company, not make payments over the life of the loan.
Other lenders may offer to allow you to make a one-time payment to the mortgage insurance company in exchange for no monthly mortgage insurance payments in the future. Savvy consumers have discovered that because a single mortgage insurance premium is considered an incurred expense in obtaining a mortgage loan, it is possible to get a seller to give a 3 percent closing cost credit and then put that money toward a single premium mortgage insurance program and avoid the ongoing cost of mortgage insurance.
Once you have 20% equity in your home you can refinance and have the PMI removed, thus further lowering the cost of your monthly mortgage payments.
If you would like to discuss mortgage insurance or our Ocean Isle Beach homes for sale, just give Jayne Anderson a call at your convenience at 910 279 4001 or toll free 800 450-3684. We’d be happy to show you any of the Ocean Isle Beach homes for sale that you may be interested in.