By: Kathleen Beck, Mortgage Lender
West Coast Mortgage Group
NMLS #243181 | BRE #01058848
Mortgage insurance is an important element of the loan process if you have a low down payment, yet many first time borrowers aren’t very familiar with what it is and how it works. Mortgage insurance helps borrowers lower the risk they are placing on lenders for qualifying them for a loan with a low down payment. There are two types of mortgage insurance, “Borrower Paid” and “Lender Paid.” Understanding the difference between borrower and lender paid, and why utilizing this insurance option could benefit the buyer as well as the lender.
Here are some great questions and answers that I have provided my clients that all borrowers may also find useful.
- Q – Who needs mortgage insurance?
- A – Most borrowers making down payments fewer than twenty percent of the purchase price need to obtain mortgage insurance.
- Q – What is the purpose of mortgage insurance?
- A – Mortgage insurance lowers the risk the lender making a loan to you holds, so you can qualify for a loan.
- Q – What is Borrower Paid Mortgage Insurance (BPMI)?
- A – BPMI is insurance on your loan for the lender when a borrower has a low down payment and a lender is looking for assurance that the loan will be paid in full and on time. If a borrower decided to utilize BPMI, the lender charges a yearly premium paid in monthly installments.
- Q – What is the average a borrower will pay a lender for their BPMI?
- A – On average, BPMI premiums costs between 0.3 and 1.15 percent of the total loan amount.
- Q – What is Lender Paid Mortgage Insurance (LPMI)?
- A – LPMI is mortgage insurance that the lender pays for the insurance premium instead of the borrower. The cost of the LPMI is reflected in a higher interest to the borrower.
- Q – Does mortgage insurance increase your monthly payment?
- A – Mortgage insurance does increases the cost of your loan.
- Q – Will the mortgage insurance payment be included on my monthly payment statement?
- A – Yes, mortgage insurance will be included in your total monthly payment.
- Q – If I default on my payments and the insurance kicks in, what will happen to my credit and my home?
- A – If you fall behind on your monthly payments, your credit score may suffer and there is a possibility your home could foreclosure.
There are multiple loan options available to borrowers with low down payments. I enjoy working with my clients to help them find the down payment and loan that best fits their financial needs and I always recommend that they ask questions and maintain communication throughout the lifecycle of their loan. The last tip I would like to leave you with is, once the loan is paid down some, you may be eligible to cancel your mortgage insurance. If you are able to cancel, you won’t have to continuing to pay the monthly insurance expense.
#Mortgage #MortgageInsurance #LPMI #BPMI #LenderPaidMortgageInsurance #BorrowerPaidMortgageInsurance #Market #RealEstate #Lending #HomeOwnership #Jumbo #FHA #VA #Conventional #Sacramento #BayArea #HomeBuyer #CreditScore #DownPayment #KathleenBeck #TrustedMortgageLender