Home buyers are no longer confined to a 20% down payment in order to qualify for a loan. Both FHA and conventional loans offer options with down payments between 3% and 5%. Because lenders are taking a bigger risk with the borrower putting less money down, private mortgage insurance (PMI) may be required.
“PMI is an insurance policy for the lender, that protects them against default,” explains Brian Faye, co-owner of NEHM.
PMI is typically required for buyers who put less than 20% down on a home or property.
Brian Taylor, also co-owner of NEHM, states, “The lender says (less than 20%) is not enough if something goes wrong with this loan. If you default (they) want an insurance policy to get bailed out.”
Mortgage insurance rates will vary depending on credit score, down payment, and lender.
With private mortgage insurance for a conventional loan, payments are typically lumped in with the monthly mortgage payment (this includes principal, interest, property taxes and homeowners insurance). FHA loans require the borrower pay two insurance premiums. One is an upfront premium and is 1.75% of the loan amount. The second is an annual premium, which can be included in the monthly mortgage payment.
Mortgage insurance can be a deciding factor in what type of loan to apply for. At New England Home Mortgage, we explain all your options to determine the loan that best fits your needs.
Watch the entire video to learn more!