Mortgage Insurance

What is mortgage insurance, how does it work?

Mortgage Insurance in Denver Colorado and most everywhere else all work for a reason. That reason is to protect the lender and you. This insurance reduces risk and makes a loan more available to you that otherwise may not have been available before.

A common practice, borrowers making a down payment that’s less than 20 percent of the purchase price of a home will need to pay for mortgage insurance. For the FHA or USDA loans, most of the time insurance will be required. On the downside mortgage insurance will increase the cost of your loan. You get the bad with the good. The good being that you are able to get the loan even if other factors such as income isn’t perfect.

So remember, mortgage insurance is designed to protect the lender – not you. You may fall behind on your payments and this can cause your credit score to suffer. The worst case scenario is that you lose your home in a foreclosure.

Loan Types and Mortgage Insurance

If you choose a conventional loan, your lender may arrange for mortgage insurance with a private company. (PMI) or private mortgage insurance rates can differ based on credit score and down payment but stay cheaper than FHA rates if you’re borrowing and have good credit.

The majority of private mortgage insurance is paid monthly with no initial payment due at closing. There are certain scenarios that arise where you may cancel your (PMI).

Federal Housing Administration (FHA) loan

All FHA loans are required to have mortgage insurance. These premiums that are paid go to the the (FHA). FHA mortgage insurance in Denver Colorado is a good idea if you plan on choosing this option of loan. The cost of this mortgage insurance is the same no matter your credit score. The price is higher if the down payment is less than five percent. The costs that are associated are things like closing costs, monthly payment and an upfront cost. You can roll some of the upfront costs into your mortgage if you need time to come up with payment. This will cause an increase in the loan amount.

 

US Department of Agriculture loan

The (USDA) loan program is like the Federal Housing Administration, but typically cheaper. At closing you can pay for insurance as a memeber of your closing costs and as a monthly payment.

 

Department of Veterans’ Affairs (VA)-backed loan

A department of Affairs VA backed loans removes mortgage insurance, but acts as a similar concept. This type of loan is designed to help veterans, service members and their loved ones. There is an upfront “funding fee” but no monthly mortgage insurance premiums.

Like with FHA and USDA loans, you can roll the upfront fee into your mortgage instead of paying it out of pocket, but doing so increases both your loan amount and your overall costs. the funding fee amount will fluctuate based on:

– Disability Status
– Your type of military service
– Your down payment.
– Whether you’re refinancing or buying a home.

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