If you own your home, you have undoubtedly received an offer for a loan from a bank or another lender to purchase a home. If you have chosen not to take the loan, it is possible that you are wondering whether or not you need mortgage insurance. Although purchasing a home is a momentous event, purchasing a home without mortgage protection insurance can put you at risk for making the wrong decision regarding your financial future. In order to avoid making a poor financial decision, it is essential for borrowers to know and understand the mortgage insurance requirements. Do You Need Mortgage Insurance? Understanding what mortgage protection insurance is and how it will affect you as a borrower is essential to making an informed decision about whether or not to purchase mortgage protection insurance.
Underwriting Requirements Almost all loan programs with less than twenty percent down payment require that the buyer commit to a mortgage insurance policy with the bank. But, mortgage insurance can still be needed even if it is not typically required by your current lender. Purchasing a home with little to no down payment and having the funds to pay monthly payments can make good financial sense. If a lender requires a mortgage, this type of protection makes sense if you can afford the premiums.
VA Loans is a popular choice among borrowers who own their homes outright and do not want to pay down the face value of the mortgage. A VA loan is similar to a conventional loan; the difference lies in the fact that the borrower must first provide the lender with a list of his or her assets so that the lender can calculate a funding fee based on the expected worth of these assets. If the borrower’s assets are less than the estimated value of the home, the funding fee will be higher. Because the lender is assuming less risk in providing this type of loan, the interest rate is also often lower than it would be on conventional mortgages.
A Collateral Foreclosure This type of mortgage insurance protects borrowers from having their home foreclosed. Unlike traditional mortgages, a foreclosure requires the lending institution to take control of the borrower’s home. Once ownership is surrendered, the lender must then sell the property at auction, public auction or private sale to repay the debt.
A conventional loan with insufficient equity If you are considering purchasing a second home, you should always get insurance quotes for the amount of equity you are planning to put into the property. If you buy a home with too much equity, you are risking losing the security of your first home if interest rates drop further. If you do not have enough equity to purchase a second home, you may not be able to get financing to buy a new house at all.
A borrower who needs mortgage insurance because he or she owes more money than the market value of the home is another example. There are actually lenders out there who will allow you to borrow less money than the current value of your home. If you can secure the loan, this could be the answer to your problem, but you may have to sacrifice something in return. If you owe more money than the value of your home, however, you should be prepared for the lender to foreclose on your home if you do not make your payments on time.
A borrower who cannot get a conventional mortgage If you happen to be a homeowner who has experienced a hard financial patch and is now unable to make any payments on time, you may have enough equity built up in your house to cover your payments. However, you should keep in mind that you cannot just refinance your home and start paying off your existing mortgage loan until you have enough equity built up to pay off both the new loan and the old one. Refinancing a home with a lower mortgage balance than the value of the home is a risky proposition, as it puts you at risk for lenders repossessing your property in the event of late payments. A better choice is to obtain an insurance policy to cover both your existing mortgage balance and the amount that you intend to borrow when refinancing. This way, if you run into financial trouble again and can no longer make your payments, you can simply sell your house and start over with a fresh mortgage.
It makes sense to get mortgage insurance If you are currently facing financial difficulties and cannot seem to make your monthly payments on time, it may make sense to see what options are available to you. Although most lenders do not require it, this type of protection can protect you from lenders who may resort to sending your home into foreclosure in an effort to retrieve their losses. The insurance protects you from losing your home, which could be the only source of income for you and your family. In many cases, you can even stop the foreclosure process by paying off the balance due on your mortgage loan while taking out a new one at a reduced interest rate. It is important, therefore, to carefully consider the advantages and disadvantages of getting mortgage insurance before deciding whether it makes sense for you and your family.