Mortgage Insurance: What It Is and Why You Might Need It

When you take out a mortgage to buy a home, you're typically required to make a down payment of at least 20%. If you can't make a down payment of 20%, you'll need to purchase mortgage insurance.

Mortgage insurance is a type of insurance that protects the lender in the event that you default on your mortgage. If you default on your mortgage, the lender can foreclose on your home and sell it to recoup their losses. Mortgage insurance helps to protect the lender from losing money if they have to foreclose on your home.

There are two main types of mortgage insurance: private mortgage insurance (PMI) and government-backed mortgage insurance. PMI is typically required if you make a down payment of less than 20%. Government-backed mortgage insurance is available for loans backed by the Federal Housing Administration (FHA), the Veterans Administration (VA), and the U.S. Department of Agriculture (USDA).

PMI is typically more expensive than government-backed mortgage insurance. However, PMI can be canceled once you have paid down your mortgage to 80% of the home's value. Government-backed mortgage insurance cannot be canceled.

How Much Does Mortgage Insurance Cost?

The cost of mortgage insurance varies depending on the type of loan you have, the amount of your down payment, and your credit score. PMI typically costs between 0.5% and 1% of the loan amount per year. Government-backed mortgage insurance typically costs between 0.5% and 1.5% of the loan amount per year.

Do I Need Mortgage Insurance?

You're not required to purchase mortgage insurance if you make a down payment of 20% or more. However, you may want to consider purchasing mortgage insurance if you make a down payment of less than 20%. Mortgage insurance can help to protect you from losing your home if you default on your mortgage.

How to Get Mortgage Insurance

You can get mortgage insurance from your lender. Your lender will provide you with a quote for mortgage insurance based on the type of loan you have, the amount of your down payment, and your credit score.

Alternatives to Mortgage Insurance

There are a number of alternatives to mortgage insurance, including:

• Making a larger down payment. The larger your down payment, the less you'll need to borrow and the lower your monthly mortgage payments will be.
• Getting a co-signer. A co-signer is someone who agrees to be responsible for your mortgage if you default.
• Taking out a second mortgage. A second mortgage is a loan that is secured by your home. You can use the proceeds from a second mortgage to make a down payment on your first mortgage.

Conclusion

Mortgage insurance is a type of insurance that protects the lender in the event that you default on your mortgage. Mortgage insurance is typically required if you make a down payment of less than 20%. The cost of mortgage insurance varies depending on the type of loan you have, the amount of your down payment, and your credit score. There are a number of alternatives to mortgage insurance, including making a larger down payment, getting a co-signer, or taking out a second mortgage.