Articles on Mortgage Insurance: CLICK HERE
When purchasing a home there are so many questions to be answered
. This is especially true if you are a first time home buyer. One of the most frequently asked questions is what is Mortgage Insurance. The answer to the question is when you purchase a home with less than a 20% down payment you are required to have Mortgage Insurance.
This protects the lender against a default in the loan by the borrower. Mortgage Insurance is also required if you are going to refinance your home and you borrowing more than 80% of your homes value. In simple language Mortgage Insurance spreads the risk between the lender and the insurance company.
Many borrowers ask why do I have to have to have Mortgage Insurance? The answer to this is without a 20% down payment many lenders would not be able to lend you the funds for your home or want to lend you the funds. Therefore making it very difficult to purchase a home. It will almost be impossible for you to consolidate your debt or make an addition to your home without
Mortgage Insurance. So even though you may feel that this is just an added expense that you don’t need it would be almost impossible to obtain a loan. It is good to keep in mind that in 2007 a law was passed that allows you to write off the cost of your Mortgage Insurance on your taxes. Just like you write off the interest you pay on your mortgage. Before subtracting anything on your taxes, I do suggest checking with your accountant. The law may vary.
You may be asking yourself do you have to pay Mortgage insurance forever and the answer is it varies on the kind of loan you have and the lender. If you have an FHA loan you will be required to pay the Mortgage Insurance for at least the first 5 years. To have the Mortgage insurance removed you will have to pay down the loan to at least 80% of the original purchase price .or value. They will not let you stop paying Mortgage Insurance based on a new appraisal.
If you have a conventional mortgage you will have to pay Mortgage Insurance for at least the first year of your loan. If you have paid your loan to 80% of the original purchase price you can ask the lender if you can remove the Mortgage Insurance. If the balance gets to 78% they are required to remove the need for Mortgage Insurance. Some lenders may let you have your home reappraised and if the value goes up you may also be allowed to stop paying Mortgage Insurance.
So to all those first time home buyers who feel they shouldn’t have to pay Mortgage Insurance. Keep in mind if you do not have that 20% down payment, his may be a way for you to afford your dream house. You may also want to consider the possibility that the cost of Mortgage Insurance can be deducted from your taxes.
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