A Consumer's Overview of Mortgage Insurance

A Consumer's Overview of Mortgage Insurance!

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What Is "Mortgage Insurance"?

It is a financial guaranty that insures all lenders against loss in the
event a borrower defaults on a mortgage. If the borrower defaults
and the lender takes title to the property, the "mortgage insurer"
reduces or eliminates the loss to the lender. In effect, the mortgage
insurer shares the risk of lending the money to the borrower.

*NOTE: Mortgage insurance should not be confused with "Mortgage
Life Insurance", which provides coverage in the event of a borrower's
death, or "Homeowners Insurance", which protects the homeowner
from loss due to damage from fire, flood, or other disasters. Different
types of loans have different names for "mortgage insurance". When
you apply for an FHA loan, it's called a "Mortgage Insurance Premium
(MIP), When you apply for a "conventional" loan (with less than 20%
down), it's called "Private Mortgage Insurance (PMI). Either way, it's
the same thing, but the rules, rates, and premiums are very different.

Without the guaranty of mortgage insurance, lenders normally require
a borrower to make a "down payment" of at least 20% of any home's
purchase price, which can mean years of saving for some borrowers.
This large down payment assures the lender that the borrower is
committed to the investment, and will try to meet the obligation of
monthly mortgage payments to protect the investment. With the
guaranty of mortgage insurance, lenders are willing to accept as little
as 5% or 10% down from a borrower. Mortgage insurance fills the gap
between the standard requirement of 20% down, and an amount the
borrower can more easily afford to put down on a purchase. A low
down payment also allows borrowers to purchase "more home" than
they could otherwise afford without it.. Ask your lender about "MIP!"