So you're trying to buy a home, but you have to pay mortgage insurance. What does that mean? How does it work?
In a standard real estate transaction, a buyer puts at least 20% down. All buyers, however, cannot afford to do that. When you are putting less than 20% down, banks are concerned that you have not invested enough of your own money into your home. They are also concerned that you won't be able to afford your monthly payment if your circumstances change. Mortgage insurance came about as a result of these concerns. Simply put, mortgage insurance is insurance for your lender in the event that you cannot make payments any longer and your lender cannot recoup its losses.
How does mortgage insurance work? If you are putting less than 20% down and have only one loan, your lender will have to arrange for mortgage insurance for you. Mortgage insurance companies typically take from 1-14 days to underwrite a file. A mortgage insurance company may decline your file, and then your lender will have to submit it to a different mortgage insurance company. If all goes well, your loan and your mortgage insurance will be approved. When you close on your purchase, you may pay an upfront premium for the mortgage insurance. Additionally, you will pay a monthly premium with your mortgage payment, depending on the size of your loan. Your lender will be able to tell you how much the mortgage insurance premium will be.
Mortgage insurance is often known as PMI, but this is a misconception. While the terms are used interchangeably, PMI (Private Mortgage Insurance) is actually the name of a specific company that offers mortgage insurance products. While many people refer to mortgage insurance as PMI, PMI is simply a brand. When you close on your purchase, your mortgage insurance may be offered through PMI or one of many other mortgage insurance companies.
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3 comments:
This is a good information on mortgage insurance for people who have been looking to buy a house for their own but who could not afford it due to some reason this is helpful now
Hi Naheed,
We just signed a year lease, moved in to a great new place, then a day later a guy from Cook County came looking for our landlord to serve him papers on an impending foreclosure. We love the
place and want to stay for at least two years so we're trying to think of the best thing we can do to make that happen. Understandably, there's not a lot we can do. We considered moving out but decided not to because we like the place so much and when talking to the landlord it sounds like he is fighting his hardest to keep the place or find a
buyer. We asked him if we could re-sign a two year lease and he said yes. This seems like our best hope of staying there for two years even though it does not guarantee it. In your experience, do you have any advice? Thanks in advance for your time.
Hi Shira,
The bank can make you leave, but if they are only interested in re-selling the building as a rental, of course it would be in their best interest to keep you there and continue getting rent. I couldn't possibly say what they're going to do!
Naheed
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