Many homeowners or first time buyers may not realize, Mortgage Insurance Quotes are chosen by the lender, and not the customer.  It is also known as a mortgage guaranty and may be public or private depending on the lender.  Basically, the Lending Institution purchases this type of Insurance to protect the lender against default of the loan.  Typically, if you put down 20% or more on a home, you probably don’t need Mortgage Insurance.  The percentage may vary depending if the home is considered a first home, second home, or investment property.  It may also depend on the type of program.

Here’s a good example of when you need Mortgage Insurance and how to keep your payments lower:

Scenario 1 – You are purchasing a primary home on a 30 Year Fixed Program for a purchase price of $200,000 and you decide to put 10% down, take .50% to .60% into $180,000 (loan amount) which equals $900 to $1080 a year, divide into 12 months, comes to an estimated $75 to $90 a month.

Scenario 2 – You are purchasing a primary home on a 30 Year Fixed Program for a purchase price of $200,000 and you decide to put 5% down, take .80% to .90% into $190,000 (loan amount) which equals $1,520 to $1,710 a year, divide into 12 months, comes to an estimated $127 to $143 a month.

Comparing the two scenarios, Mortgage Insurance is cheaper and more affordable if you put more money down on the home you are looking to buy.

There are government type programs available for all homeowners that want little cash to purchase a new home.  For example, going FHA or VA are incredible programs that require little or no money down.  You can only use these programs on a home you will consider your primary home, and only home, at the time of purchase.  In order for you to take advantage of a VA Loan, you must be a qualified veteran of the U.S. Armed Forces.

Scenario 1 – You are purchasing a primary home and do not own another home at the time of purchase.  The Purchase Price is $200,000 and you would like to come up with little or no money.  FHA homes require the buyer to come up with 3% down equaling $6,000.  The seller can pay up to 3% of the purchase price towards closing costs and prepaid items such as insurance and reserves for property taxes.  So, the loan amount would be $200,000 minus 3% down, equals a loan amount of $194,000.  FHA has a Funding Fee of 2.25% of the loan amount, which equals $4,365.  The FHA Funding Fee can be rolled into the mortgage, making the loan amount $198,365.  The Mortgage Insurance is lower with FHA, making the percentage estimated .50% which comes to $992 a year, divide by 12 months in a year, equals an estimated $82.65 a month.

The FHA Program is a great program to use when you want to put a minimal 3% down and want a discount on a Mortgage Insurance quote.  Please remember, if you keep the home for a short time, part of the FHA Funding Fees’ unused portion may be refunded.  Either way, please make sure you get an Estimate of Closing Costs in order for you to determine the Mortgage Insurance Quote.