Thinking of buying a home?  The current market presents some unique opportunities for first time home buyers and other buys perhaps looking to move up to a larger home. The government is most likely going to extend the$8K tax credit that was due to expire at the end of this month.   If you have been a prudent saver or investor and have some auxiliary dollars to put down on a 20% or better on a home mortgage.  Congratulations to you.  For the rest of you, there is still hope, thanks to Mortgage insurance; you can still get into a home without having to put the required 20% down to purchase a home.

Mortgage insurance, better known as private mortgage insurance (PMI), can enable home buyers to still purchase a home without having the large out of pocket, up front expense. With private mortgage insurance, you the borrower pays for the premium while the lender is the beneficiary.   Similar to life insurance, you pay the premium every month which protects the lender from a potential default should you experience some sort of interruption in employment, or some other significant or catastrophic event.

The cost of private mortgage insurance is typically about one-half of one percentage value of the loan or mortgage.  Costs can vary depending on the size of your down payment and the actual loan itself.  Again, the coverage protects the lender against default by the borrower.  If a borrower stops paying on a mortgage, the insurance company pays the lender the full value of the remaining mortgage or loan amount.

Mortgage insurance can be paid for in a lump sum at closing, or can be figured into the monthly installment payment and typically, the mortgage company will select the mortgage insurance provider for their respective customers.

Even within the current housing market, a home purchase is still quite significant and home prices can still be relatively high depending on the metropolitan area within which you chose to purchase when you consider in many areas average home prices still exceed $200,000.  Given the current economy, $20,000 dollars down as a 20% requirement can still be a lot of money especially if you are a first time home buyer.

Obviously, with the mortgage market and the financial sector in such disarray, you may find that mortgage insurance may be more expensive than it typically used to be.  However, most private mortgage insurers are still writing new business.  They are just required to be a bit more prudent with which sectors or lenders they chose to do business with.

Many insurers have stopped offering private mortgage insurance for condos and other attached-housing, cash-out refinances, mortgages for second homes, and even manufactured homes.  Additional restrictions can include broker-originated mortgages and limiting insurance to only those loans where borrowers put at least 10% down and have a credit score exceeding 715.

First time home buyers or buyers who have been fiscally responsible are still very likely to be able to find a company to sell them mortgage insurance. Many mortgage authorities say there are conditions under which lenders will offer mortgages to those with less than a 20 percent down payment or equity in a home. In those instances, a borrower will not only need to have excellent credit and adequate income but be in an area with stable housing prices.  So you will need to do your homework.  As with any financial decision, you need to know all the facts and do your research to find the best rates through your lender.

Another great benefit of paying for mortgage insurance as a means to get you into your first home without having to break your budget is you can also drop your mortgage insurance once your home has appreciated and you have at least 20% equity in your home.  It is a fee you will only face paying until you home appreciates.  Depending on the deal you are able to find and how much research you do to ensure the best possible home purchasing decision, you could potentially be out of paying the costs of carry private mortgage insurance within two or three years of your home purchase.

Ultimately, if you are considering buying your first home within the current market environment, mortgage insurance may be the way for you to go. Even if you have managed to save the required 20% down for purchase, it may still be advantageous for you to consider purchasing private mortgage insurance.