Many things will be running through your mind when preparing to buy your dream home. The first will be how much you’re going to pay for the new house. Getting a mortgage loan is one of the best ways to help spend less upfront yet still able to afford your home. However, you will need to get mortgage insurance to protect the lender’s investment in case you default on the loan. If you’re planning to get a mortgage, here are a few things you need to know about mortgage insurance.
What Exactly Is Mortgage Insurance?
Mortgage insurance covers lenders against default on loans. It helps you get your dream home sooner by reducing the down payment you need to make. Lenders view borrowers who cannot make a down payment of 20 percent as a higher credit risk. Mortgage insurance coverage protects lenders in the case of borrower default. If a borrower defaults and the lender cannot recover its money after the property sale or foreclosure, the mortgage insurer provides money to recoup losses.
How To Qualify For Mortgage Insurance?
You must meet different criteria to qualify for mortgage insurance. You need to:
- Prove the property is located in the United States.
- Pay a minimum down payment of 5%
- Ensure your debt doesn’t surpass 40% of your household income.
- Ensure your monthly housing expenses don’t exceed 32% of your gross income.
What’s The Cost Of Mortgage Insurance?
Mortgage insurance costs depend on your insurance type and whether the interest rate is adjustable or fixed. Your loan’s length, credit score, home’s value, and the coverage amount your lender requires will all determine your mortgage insurance cost. On average, expect to pay up to 1% of your home loan amount annually.
