Purchasing a home is a large financial undertaking and can feel incredibly daunting. Without knowledge of potential protections and options, it can be difficult to prepare for this purchase. However, by working with a knowledgeable real estate team, you can adequately prepare for future mortgage payments and establish a reliable budget.
At Premier Utah Real Estate, we understand how helpful mortgage insurance can be for certain home purchases. Whether you believe you are a good candidate for one of these insurance policies or you want to learn more about the options on the market, keep reading to learn more about the world of mortgage insurance.
What is Mortgage Insurance?
There are several different forms of mortgage insurance designed to help individuals in very unique situations. The most commonly known form of insurance is private mortgage insurance, though there are several other forms of insurance, including mortgage protection insurance and mortgage insurance premiums. In many cases, this insurance is used to protect your lender in the event that you are unable to pay back your loan.
You should begin discussing mortgage insurance with your real estate team prior to searching for a home. During this discussion, you can attempt to pre-qualify for your mortgage to give you a better idea of how much you can afford to spend on your home. This will also help you determine if you have enough money to pay the necessary down payment on the loan.
Private Mortgage Insurance
Many conventional loans require a down payment of at least 20 percent. Private mortgage insurance is required if you are unable to provide a down payment on your loan of at least 20 percent. This insurance is used to protect lenders in the event that you are unable to continue making mortgage payments.
In many cases, your private mortgage insurance is paid on a month-to-month basis, and the premium is added to your monthly mortgage payment. Sometimes, however, you are able to pay the entirety of this insurance at the time of closing. Once your mortgage has reached 80 percent of your home’s original value, your insurance may be canceled.
However, there are some stipulations to this cancellation. You must have a good payment history and be current on your payments. You should also not have a second mortgage on your home, and the property’s value should not have fallen below the original value at the time of purchase.
Mortgage Protection Insurance
Mortgage protection insurance is a policy that pays out your mortgage in the event that you become disabled and are unable to work or in the event of your death. Unlike life insurance policies, this insurance is paid out directly to your mortgage lender to pay off the remainder of your loan.
Unlike some other insurances, mortgage protection insurance isn’t required. Because it is not required, there are a few other insurance options you might consider, including life insurance, that provide more flexibility to your loved ones.
You are well within your right to cancel your mortgage protection if you see fit. However, it is important to remember that your insurance provider will no longer be required to pay out the remainder of your insurance as a result of disability or death. With this in mind, it is best to speak to a trusted real estate team before making these decisions.
Mortgage Insurance Premium
If you have a low credit score or very little capital available for a down payment on your home, you may qualify for a Federal Housing Administration (FHA) loan. While these loans make it possible to fund a home purchase, it does require the payment of mortgage insurance premiums.
These premiums are required to protect lenders in the event that you default on your FHA loan. With this plan, home buyers have to pay upfront and annual insurance fees. Your insurance upfront premium is currently set at 1.75 percent of the base loan amount. The monthly premium is 0.45 to 1.05 percent of the loan.
FHA loans made between 1991 and 2000 cannot cancel their insurance premium. To get rid of the insurance, you will need to refinance. If your loan was made between 2001 and June 3, 2013, the loan is canceled once the loan reaches a 78 percent loan-to-value ratio. With loans made after June 3, 2013, with a 10 percent down payment, your insurance is canceled after 11 years.
Do You Need Mortgage Insurance?
Not every homebuyer will require insurance in order to purchase a home. You are only required to get insurance on your mortgage if you qualify for an FHA loan or if you do not have a 20 percent down payment for a conventional mortgage. However, you can consider purchasing insurance, such as mortgage protection insurance, if you wish to protect your loved ones from the financial burden of paying off the loan.
Working with the Professionals to Protect Your Purchase
If you are on the fence about getting mortgage insurance and aren’t sure if it is best for you, it is best to reach out to a team of trusted professionals. At Premier Utah Real Estate, our team has years of experience helping individuals across Northern Utah find the right mortgage and insurance for their home purchase. If you would like to speak with a member of our team about your options as you prepare to purchase a new home, don’t hesitate to contact us today to schedule an appointment.