Mortgage Insurance: The Necessary Evil?
Mortgage insurance insures the lender in case of a default by the borrower and is required on conventional financing when the down payment is less than 20%.
The bank or mortgage company you obtain your financing from will seek to obtain the mortgage insurance coverage on your behalf. However, the premiums are typically paid monthly by the borrower as part of your mortgage payments and are tiered at 5%, 10% and 15% down payments.
The smaller the down payment the higher the mortgage insurance rate. What you may not be aware of his mortgage insurance is becoming increasingly more difficult to obtain. A few examples of their “newer” requirements are:
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Minimum credit score of 700
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Total debt to income ratio not to exceed 41%.
While the reasons for this are many, but when you are in a business of insuring defaulted loans clearly there have been better times for this industry as more than 10% of all mortgages are 30 days or more past due. With out mortgage insurance you would have to obtain FHA financing or be forced into putting 20% down. Not that long ago most banks would loan you part of the down payment in a second mortgage to avoid the mortgage insurance premiums but that option for the most part is no longer available.
If you do obtain your financing with mortgage insurance you may be able to cancel the insurance within 12-24 months if upon review of a new appraisal the necessary equity of 20% is now there. The responsibility lies with the borrower to initiate this review process. It is becoming increasingly important to discuss this situation with your lender as early in the process as possible.
Any mortgage questions?
Call the author of this piece:
Tony Pigatti
Vice President Residential Lending
Archer Bank
Office #708-237-4049
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