Quicken Loan’s 1% Down Mortgage Program

It seems just about everyone is lowering mortgage down payment requirements to deal with rising home prices, this despite the near-record low mortgage rates still widely available.

You see, down payment is still the biggest hurdle to homeownership, and I suppose it was during the previous boom as well. That would explain why zero down mortgages were the norm back in 2006.

The major problem then was that you could also state your income, your assets, and not disclose your job, so long as you had a decent credit score. No skin in the game and no disclosure equals no good.

We’ve learned from those mistakes, I hope, and now underwriting is a lot more sound. Still, people want to buy homes, whether they’ve saved up a large down payment or not. And that would explain why Fannie and Freddie began offering 97% LTV mortgages.


Building off those programs are mortgages with grants that still give the homeowner a 3% down payment, but without the borrower actually having to come up with the three percent in funds.

Instead, many lenders are providing a 2% grant to homeowners and asking that they come up with the remaining one percent, which seems pretty fair.

The use of a grant is allowed under both Fannie’s HomeReady program and Freddie’s Home Possible Advantage, and some banks dole outs funds in accordance with the Community Reinvestment Act.


Quicken Loans 1% Down Payment Option

Interestingly, the largest non-bank mortgage lender in the country, Quicken Loans, quietly rolled out their 1% down payment option back in March, but there wasn’t a press release or any fanfare. There certainly wasn’t a Super Bowl commercial.

I don’t know why that is; I’m just here to tell you about the loan program in case you lack a down payment and are interested. If I had to guess, I’d say that it’s limited to certain types of buyers and thus a national rollout or major ad campaign might be misleading and/or a waste of money.

Anyway, let’s talk about Quicken’s 1% down loan program to see if you might qualify based on what I know about it.

First off, this program can only be used for the purchase of a home, no refinances are permitted. Quicken Loans provides a 2% grant and the borrower brings in the remaining 1% to make it a 97% LTV loan.

I’m not sure if the grant has to be paid back if the borrower sells or refis before a certain period of times passes. Inquire with Quicken about that.

Secondly, the property must be a one-unit owner-occupied property, which includes single-family homes and condos (and townhomes), but not co-ops.

When it comes to credit, the minimum FICO score required is 680, which is considered average (or perhaps a bit below average). So it’s pretty flexible in terms of creditworthiness.

Perhaps more importantly, you must make less than or equal to the median income for the county in which you’re purchasing the home. If the income limit is $75,000, you must earn that or less to qualify for the 1% down payment program.

Speaking of income, the maximum DTI ratio is 45%, which is standard.


Quicken’s 1% Down Might Not Require Any Funds from the Borrower

If there aren’t any additional overlays on this program versus the ones offered by Fannie and Freddie, no minimum borrower contribution is required, meaning the down payment funds and any reserves can be gifted.

The Quicken program also comes with a free “introduction to homeownership” course that is required for first-time home buyers, but available to everyone at no cost.

When it comes to loan types, you’re likely going to be limited to fixed products with a 30-year amortization. Put simply, probably the 30-year fixed unless you can afford and desire a 15-year fixed. That wouldn’t really make sense for someone lacking a down payment.

There will be mortgage insurance, seeing that the loan is well north of 80% LTV, but it might be at a reduced rate as it is via the Fannie/Freddie 97 programs.

I have no idea what the mortgage rates are like, but I assume higher than what you see advertised to account for the higher risk of putting just one percent down. But seeing that rates are so low at the moment, they’ll probably still look pretty favorable.

For the record, Quicken is just one of many lenders out there offering grants to home buyers to push the down payment requirement down to just 1%, so you can always shop around to compare different interest rates and program requirements by lender.

Recently, Guaranteed Rate launched a similar program, as did United Wholesale Mortgage (if you’re using a mortgage broker).

Other regional lenders, such as Fifth Third and BancorpSouth, have introduced zero down offerings.

The mortgage market is changing rapidly to account for higher home prices. So take the time to compare all options, including FHA loans, to see what the best fit is for your situation.

source:  thetruthaboutmortgage.com

What is a Piggyback Mortgage?

While mortgages are a good time, private mortgage insurance (PMI) is not. Usually, if you don’t have enough money to make a down payment of at least 20 percent (keeping the loan-to-value ratio (LTV) under 80%), you’re required to get mortgage insurance. Fortunately, clever people figured out a loophole—the piggyback mortgage.

How it works

There are three parts to this solution, dubbed the 80-10-10 format. The first is to make a down payment of 10 percent. Step two is to get a “piggyback mortgage”, possibly in the form of a home equity loan or home equity line of credit, to cover the remaining 10 percent of the down payment. Finally, you will get a mortgage for 80 percent of the purchase price. And there you have it: 20 percent down and no mortgage insurance.


Other types of piggyback mortgages do exist, like the 80-5-15, or the 80-15-5. The middle number stands for the second mortgage and the third the down payment. These formats aren’t as common as the 80-10-10, but they are available and useful for some people.

Are there any possible problems?

Unfortunately, it’s not all rainbows and ponies with a piggyback mortgage. When it comes time to refinance, if the lender that is issuing the piggyback mortgage doesn’t agree to resubordination, you could be forced to re-evaluate your situation and call an audible.

Resubordi-huh??

It’s like this: you have two mortgages, the primary mortgage and the piggyback mortgage. Naturally, the primary mortgage is first, and the piggyback mortgage is second in line, or as they say, subordinate to the primary mortgage.

Resubordination is the process of keeping the primary mortgage in first place. Each lender will want their loan to be first in line, as that loan will have a higher priority and be paid off first, so it’s possible that the lender will not agree to remain in second place when you refinance.

This creates a problem because conventional first mortgage lenders require that their loan is in the first position in order to refinance. Usually, this isn’t a problem, as resubordination is a fairly common practice.


They won’t resubordinate! What do I do?!?!

If your second lender won’t agree to resubordination, you could get a cash-out refinance, and then use that cash to pay off the piggyback mortgage. You could also get a cash-in refinance, which would reduce your loan-to-value ratio. After you talk it out with your lenders, a solution will usually become clear.

Bottom Line

If you want to avoid paying private mortgage insurance, getting a piggyback mortgage is one way to make that happen. Just make sure you talk through the refinancing process with your lenders so you know what your options will be when that time comes.

source: totalmortgage.com

How to Get a Mortgage With Little Savings

If you don’t have a lot of cash in your savings account, you might think you can’t qualify for a mortgage. Between closing costs and down payments, getting a mortgage is expensive. And some first-time homebuyers think every mortgage lender requires a 20 percent down payment. However, many lenders require much less from buyers, which is good news if you have little savings. The truth is, there are several mortgage provisions for people in your situation. Here’s a look at four options for getting a mortgage with little savings.

1. Low down payment mortgage loans

You don’t need a large downpayment for some conventional mortgage or FHA home loans. FHA home loans only require 3.5 percent down, and conventional mortgage lenders recently reduced their minimum down payment from five percent to three percent.

The downside is that you’ll have to pay mortgage insurance with both options. Mortgage insurance protects the bank in case of default and its required on every loan with less than a 20 percent down payment. Since annual premiums are added to your mortgage payment, mortgage insurance increases your monthly payment. FHA mortgage insurance is 0.85 percent of the loan balance, and private mortgage insurance with a conventional mortgage loan is 0.50 percent to one percent of the loan balance.

2. USDA home loan

The U.S. Department of Agriculture encourages growth in rural parts of the country. So if you’re thinking about buying a home in a small town or a rural  area of your city, you might qualify for a no-money down USDA home loan which features low interest rates and flexible credit guidelines.

However, don’t think you have to move to the country or live far from civilization to qualify. Interestingly, many homes in populated areas are eligible for a USDA home loan. Provide your loan officer with the address of the property you’re thinking about purchasing and he can determine whether the address is eligible for USDA financing.

3. VA home loan

If you’re active-duty military or a veteran, you might be eligible for a VA home loan. Like a USDA home loan, these loans do not require a down payment. There’s no private mortgage insurance and limitations on buyer’s closing costs, which also saves money.

4. Increase your credit score

A high credit score says you’re responsible with money and you’re most likely to pay your mortgage on time. FHA home loans require 3.5 percent down regardless of your credit score, but some conventional lenders will require a higher down payment if your credit score is lower than 650 to 680. In this case, the down payment can range between 10 percent and 20 percent. You can increase your credit score by paying bills on time and paying off debt before applying for the loan.

You’ll face hurdles when buying a home, but don’t be discouraged if you have little savings. Know your mortgage option and think of ways to build your savings, such as liquidating personal belongings or borrowing cash from a retirement account — as long as you’re committed to repaying these accounts.

You also have to deal with closing costs. Getting multiple mortgage quotes is one way to lower closing costs. You can also wrap closing costs into your mortgage to avoid any out-of-pocket expense or you can negotiate seller paid closing costs.

source: totalmortgage.com

Getting Rid of Private Mortgage Insurance

You can raise your credit score, save enough cash for closing costs, and maintain accurate financial records. However, if you don’t have at least a 20 percent down payment when buying a house, you’ll have to pay private mortgage insurance.

Private mortgage insurance is required on all mortgage loans with a loan-to-value ratio greater than 80 percent. The annual premium for PMI — which is between 0.5 percent and one percent of the loan — is added to each mortgage payment. Therefore, if you get a mortgage for $100,000, and your mortgage insurance premium is one percent, you’ll pay $1,000 a year for PMI, or about $83 a month.

For the most part, private mortgage insurance is a win-win for both parties. It protects lenders against loss if a borrower defaults on the loan; and PMI puts homeownership within reach for borrowers with less than a 20 percent down payment.

Private mortgage insurance is costly for borrowers — but fortunately, it’s not permanent. Here’s a look at two ways to get rid of private mortgage insurance.

    Borrower-requested cancellation

Since PMI is only required by lenders when a homebuyer has less than a 20 percent down payment, you can ask your lender to cancel mortgage insurance once your property has 20 percent equity — but there are no guarantees.

There are several ways to build equity faster. For example, you can submit extra mortgage payments to reduce your principal balance. There’s the option of paying one half of your mortgage payment every two weeks, which is the equivalent of one extra mortgage payment a year. You can also pay a little more each month, and apply the extra payment to the principal only.


Additionally, home improvements can quickly raise your property’s value and eliminate mortgage insurance sooner. Home improvement projects that pay off include kitchen and bathroom remodels, room additions, and exterior improvements.

To request PMI cancellation, you’ll have to submit a request in writing and follow your lender’s guidelines. If your mortgage is current and your home’s value hasn’t declined, the bank may comply with your request. However, your lender will require a home appraisal before eliminating mortgage insurance. Appraisals cost between $300-$400, depending on the size of your home.


    Automatic PMI termination

The reality is that some borrowers can’t afford to pay down their mortgages early or spend money on costly home improvements. Don’t overly stress about mortgage insurance if you fall into this category. Be patient, and in a few years, your lender will automatically terminate PMI.

The Homeowner’s Protection Act (HOPA) makes it illegal for lenders to unnecessarily charge borrowers mortgage insurance. As a rule, lenders must automatically remove PMI on the date that your “mortgage balance is scheduled to reach 78 percent of the original value of the home” based on the initial amortization schedule, says Sara Millard, senior vice president and deputy general counsel at United Guaranty Corp.
 
So, even if your lender rejects your request to cancel mortgage insurance once your property has 20 percent equity, HOPA stops PMI from becoming a permanent or long-term expense.

Bottom Line

Mortgage insurance isn’t cheap, and paying this premium every month will increase your mortgage payment. To avoid PMI, aim for a 20 percent down payment when purchasing a house. It’ll take longer to buy and you’ll have to make sacrifices, but it’s worth the effort. Besides, a 20 percent down payment not only eliminates mortgage insurance, it also helps you qualify for a better mortgage rate.

source: totalmortgage.com

Peer-to-Peer Lender SoFi Now Offering Mortgages to Smart People

A new lender has entered the mortgage space, but this one’s a little unique, and its offerings are too.

You see, they’re a “marketplace lender,” otherwise known as a peer-to-peer lender, meaning everyday investors can provide funds to borrowers seeking mortgages.

The lender in question, San Francisco-based Social Finance, or “SoFi” for short, says individuals and institutional investors have the ability to “create positive social impact on the communities they care about while earning compelling rates of return.”

In other words, you can be the mortgage lender and make some money in the process. Oh yeah, and earn some good karma if you think peer-to-peer lending is an act of goodwill.


Anyway, the company has already doled out over $1 billion in student loans and now has its sights set on the mortgage market, which some seem to think has become too restrictive. Just ask Ben Bernanke…

The idea here is to target early-stage professionals (recent graduates) who need help financing their home purchases (they also offer refinancing).


SoFi Offers Interest-Only and 10% Down Mortgages with No MI


I dug into their website and found some interesting stuff. For one, they offer interest-only mortgages, which are considered non-QM and somewhat harder to come by these days.

Additionally, they offer loans with as little as 10% down without mortgage insurance, which again is slightly unconventional but probably just collected via a higher interest rate.

Still, they offer IO mortgages with loan amounts as high as $3 million, meaning they’re a jumbo peer-to-peer non-QM mortgage lender.

Per their website, they currently offer a 5/1 ARM with a 10-year interest-only option, a 7/1 ARM, and a 30-year fixed.

Sample rates as of October 9th, 2014 were 2.98% to 5.08% for the 5/1 ARM, 3.13% to 3.89% for the 7/1 ARM, and 4.00% to 4.67% for the 30-year fixed.

They seem pretty close to what traditional lenders are offering these days, though keep in mind that SoFi doesn’t charge loan origination fees.

Are you an ambitious professional? If so, you might be the right fit for SoFi. Even more intriguing than their product offerings is their underwriting process.

SoFi claims that they can fund a mortgage in less than 21 days, as opposed to the industry average of 30-45 days. And they promise not to ask for “useless details.”

Part of their speediness be related to the fact that they use AVMs instead of appraisals for loan approval, which can certainly save some time. However, they eventually conduct an in-person appraisal as well.

They also ask applicants to apply and upload documents online, which allows them to complete loan approvals complete with automated valuations in less than 48 hours.


 SoFi Cares Where You Went to School and What You Majored In

Of course, there is a major caveat. In order to qualify for a SoFi mortgage, you need to have graduated from a selection of Title IV accredited universities or graduate programs.

This might have something to do with the fact that they were a student loan lender before jumping into mortgages.

Not sure which schools/degrees qualify, but I think the expectation is that even if you aren’t making much money now, you’re expected to be in the near future.

I went through the beginning of the loan application process online and noticed that only certain degrees were listed. It’s unclear if it’s an exhaustive list, but they certainly take schooling seriously.

However, SoFi refers to their debt-to-income limits “flexible,” so you might be okay if income is a little light as long as you went to Stanford.

They also determine loan eligibility by credit history and employment status, and require that applicants be at least the age of majority in their state. So I take that to mean no child doctors. Sorry Doogie.

At the moment, SoFi mortgages are only available in California, DC, New Jersey, North Carolina, Pennsylvania, Texas, and Washington on owner-occupied properties, but they’re expected to reach other states soon.

For the record, if you want to become an investor in SoFi mortgages, you need to be an accredited investor, which generally means you need to have a net worth of over $1 million (excluding your primary residence) or make $200k per year.

So no, not every Tom, Dick, and Harry can become an individual mortgage lender, but those with money can.

It’ll be interesting to see if P2P lending gets more popular in the mortgage world as prospective homeowners look beyond traditional banks and lenders for financing. Stay tuned.

source: thetruthaboutmortgage.com

You Can Have an Adjustable-Rate Mortgage, But Only If You Educate Yourself First

Homeowners opt for ARMs instead of fixed mortgages for a number of reasons, but it’s mostly to save money.

After all, adjustable-rate mortgages are offered at a discount compared to fixed mortgages, and the level of discount varies based on how long the ARM is fixed.

The shorter the fixed-rate period on an ARM, the lower the interest rate. So if you want the lowest rate, you need to go with a one-year ARM as opposed to a 7/1 ARM.

Back in the mid-2000s, it wasn’t uncommon to see 1-month and six-month ARMs, which adjusted after just a month and six months, respectively.

Clearly this made for a lot of uncertainty, especially for less sophisticated homeowners who were often aggressively pitched such mortgages.

To make matters worse, lenders offered better pricing, or rather commissions, on ARMs with prepayment penalties.

Long story short, a ton of naïve homeowners wound up with short-term ARMs and three-year prepayment penalties, meaning they couldn’t refinance (or even sell in some cases) once interest rates went up.

As home prices tanked and monthly mortgage payments went up, the housing market imploded. The irony is that many of those who took out ARMs before the most recent housing crisis (to save money) lost their homes because of them.

Could We Repeat History Again?

 

But times have changed, right? Perhaps. The prepayment penalty is largely a thing of the past, and ARMs are a lot less popular these days thanks to ultra-low fixed rates.

However, the ARM-share of mortgages has been inching up lately, mainly because home prices are on the rise and borrowers see value in getting a discount for the first several years of their loan.

There also seems to be this belief that rates aren’t going to rise anytime soon, so why not go with an ARM and save lots of money?

Unfortunately, it’s that line of thinking that could land a lot of these borrowers in a tough spot a few years down the road, even if they qualify at the fully indexed rate today.

First off, payments can become unmanageable after a reset, especially if the borrower’s financial situation changes for the worse. And let’s face it; nobody’s job/income is set in stone.

Secondly, if rates do rise and you seek a refinance, you need to qualify. It’s never a guarantee to qualify for a mortgage. It’s also not cheap to refinance.

To alleviate some of these concerns, two financial literacy advocates have come up with a few ways to make ARMs safer.

Introducing the Safer ARM

 

John Bryant, the founder of Operation HOPE, and Robert Gnaizda, a founder of Greenlining Institute, have proposed a few ways we could make mortgages safer without impeding access to credit.

Their first suggestion is to require non-profit financial education before a low- or moderate-income family can take out any type of ARM, or interest-only mortgage for that matter.

Secondly, they believe no ARM should have a term that is less than the median time Americans own their primary residences, which is roughly seven to nine years.

In other words, you would only be allowed to take out a 7/1 or 10/1 ARM, and if you were considered a low- or moderate-income borrower, you’d have to complete a homeowner education class as well.

The pair also believes no institution should be able to offer interest-only mortgages to borrowers with less than a $5 million net worth.  Don’ worry Mark Zuckerberg, you’re okay.

They argue that had these measures been in place a decade ago, the crisis would have never happened.

Reforming the QM Loan

 

Aside from taking issue with ARMs and IO options, Bryant and Gnaizda think the Qualified Mortgage rule could benefit from some tweaks as well.

They believe Fannie Mae and Freddie Mac should consider any 30-year fixed mortgage with a minimum seven percent down payment as a QM loan.

But only if the borrower’s income doesn’t exceed the median and the home is valued at no more than 90% of the region’s median price.

These loans wouldn’t require mortgage insurance either, though lenders would be able to charge a premium of 50 basis points for the first five years of the loan to compensate for risk (and even longer if the borrower fell delinquent).

Again, these borrowers would have to complete both pre- and post-financing education, though they could also receive a temporary waiver for up to six months of housing payments if unemployed or sick after five years or more of homeownership.

They plan to discuss these ideas with financial institutions, though similar warnings/suggestions thrown around a decade ago seemed to fall on deaf ears.

source: thetruthaboutmortgage.com

Second Mortgages

When you hear the term “second mortgage,” a negative connotation may come to mind. You may be thinking, “Why would I need a second mortgage?” I’m not in financial distress.

Well, times have changed, and gone are the days when homeowners put down large down payments and pay off their mortgages in a matter of years. Nowadays, it’s quite common to hold a second mortgage, typically in the form of a home equity line as part of a combo loan.

Types of Second Mortgages

Many homeowners carry both a first and second mortgage, often closed concurrently during the home purchase transaction. In these cases, the second mortgage is referred to as a “piggyback loan” because it sits behind the first mortgage. Piggyback loans are used to extend financing terms, allowing borrowers to put down less on a home, or break up their loan into two separate amounts to produce a more favorable blended rate.

[See the latest mortgage rates from dozens of lenders, updated daily.]

 

Two common formulas for a piggyback loan would be an 80/10/10 or an 80/20. An 80/10/10 translates to 80% on the first mortgage, 10% on the second mortgage, and a 10% down payment. An 80/20 is an 80% first mortgage, a 20% second mortgage, and zero down payment.  Uh oh.

Second mortgages can also be opened after a first mortgage transaction is closed, as a source for additional funds. Homeowners can either elect to take a lump sum of cash in the form of a home equity loan, or opt for a home equity line of credit (HELOC), which allows them to draw specific amounts of money when needed using an associated credit card. Keep in mind that you need equity in your home to execute this type of transaction.

Second Mortgage Payments

Monthly payments on second mortgages are typically pretty low relative to the first mortgage, but only because the loan amount is generally much lower.  Rates on second mortgages can be quite steep, so be sure to do the math to ensure it’s the right choice.

Second mortgages are offered in both adjustable and fixed-rate options, with home equity loans typically fixed and home equity lines of credit variable.  Home equity lines of credit also come with an interest-only option during the draw period, as do some home equity loans early on.  In any case, you should have several options to choose from to find the right fit for your particular situation.

Advantages of Second Mortgages

Second mortgages that are closed concurrently with the first mortgage during a purchase transaction are also referred to as “purchase money second mortgages”. As mentioned earlier, these second mortgages allow homeowners to come in with a smaller down payment, or no down payment at all. During a purchase transaction, the homeowner can break up the total loan amount into two separate loans called a combo loan. The risk is split between the two loans, allowing higher combined loan-to-values and lower blended interest rates.

Second mortgages in the form of piggyback loans also allow homeowners to avoid paying PMI, or private mortgage insurance. The savings can be quite substantial depending on how the loan breaks down, often saving the homeowner hundreds of dollars a month. If the first loan is kept at or below 80% loan-to-value, PMI needn’t be paid.

Additionally, breaking up your total loan amount between a first and second mortgage may allow you to keep your first mortgage under the conforming loan limit, which should help you obtain a lower interest rate if you’re in jumbo loan territory.

Second mortgages can also be opened after the purchase transaction is complete, as a home equity loan or home equity line of credit. This additional allowance of funds can provide a homeowner with much needed cash to improve the quality of their home or pay off high-interest loans, while avoiding a refinance of the existing first mortgage.

Disadvantages of Second Mortgages

Once you’ve got a second mortgage, it will be increasingly difficult to get any additional financing, such as a third mortgage. While it’s probably not common that a homeowner should require a third mortgage, emergencies do happen, and you may mind yourself trapped if you need more funds for any other reason.

Interest rates on second mortgages are typically quite high compared to first mortgages, and it’s quite common to receive an interest rate in the double-digits on a second mortgage. You could get a better deal with just one mortgage, or possibly even by paying mortgage insurance.

Many second mortgages are home equity lines of credit, which are tied to the prime rate. Whenever the prime rate is adjusted, the interest rate on your home equity line will change accordingly, effectively making it an adjustable-rate mortgage. When the Fed was raising the prime rate month after month in years past, many homeowners faced substantially higher monthly payments on their second mortgages.

Some home equity lines come with additional fees, such as an early closure fee, as well as minimum draw amounts that may exceed your personal needs. Make sure you read all the fine print to avoid any surprises.

Last but not least, second mortgages mean more debt, more interest due, and can potentially extend the amount of time it takes to pay off your first mortgage.

All that said, there are a number of pros and cons to opening a second mortgage, but they shouldn’t be looked upon as negative financing instruments, rather just another option to consider when seeking home loan financing.

One final note: Many mortgage lenders are reducing the availability of second mortgage programs as the secondary market continues to grapple with credit issues, so you may find it much more difficult to obtain a second mortgage these days.

source: thetruthaboutmortgage.com

What to Know about Mortgage Insurance?

Currently if you are looking for a mortgage that is more than 80% of your home value, you probably have two ways: one is taking out the second mortgage for the amount above 80%, or purchasing mortgage insurance on the current mortgage to reduce the risk of the lenders. Which way to go? It depends on you!

What is mortgage insurance?

Maybe you are totally new to mortgage insurance if you have never had business with banks or lending institutions alike. Simply speaking, mortgage insurance is a kind of financial guaranty that protects lenders against the losses in the event that borrowers default on a mortgage loan. In case of default, the lenders will take the property while the mortgage insurer makes the compensation to them. Thus, by insuring the mortgage, the insurance company shares the risk of lending money to the borrower.

If you are a bit confused, let’s take an example:

• Say you want to purchase a new home which costs $120,000. You pay down 10% and take out a mortgage of $108,000 for the remaining 90%. The lender requires you to buy mortgage insurance for the loan to protect himself/herself against losses caused by your default. Then you have to purchase a mortgage insurance policy that covers 25% of $108,000 ($27,000), leaving the rest to the lender. If you default and the house is sold at a loss, the mortgage insurer will first repay $27,000 of the loss.

Mortgage insurance helps home buyers become home owners sooner, and undoubtedly increase their purchase power, for instance, first-time home buyers can take advantage of mortgage insurance to access to lower down payment. In most cases, mortgage insurance will be required by lenders when the down payments are less than 20%.

Who is responsible for the insurance premium?

Though private mortgage insurance in the US is divided into borrower-paid type and lender-paid type, actually in most cases the mortgage insurance is paid by borrowers. The insurer will charge an upfront sum of premium for the coverage, and besides, you have to pay a monthly or annually premium. The insurance rate can range from 0.5% to 6% of the loan principal, based on the loan amount, LTV, fixed or variable, as well as your personal credit history. It is noted that mortgage insurance payments are not tax deductible.

How to obtain mortgage insurance?

If you have decided to purchase a house with the aid of mortgage insurance, your mortgage lender would be your first resource for mortgage insurance, as the lender may have partnership with a specific mortgage insurance company, which might make your coverage options and payments affordable and flexible.

Besides, you can turn to insurance agents or brokers that are specialized in helping customers select mortgage insurance. A reliable and good broker can save you a lot of time in comparison shopping and lead you to the best suitable insurer or coverage. Or you can visit the websites of mortgage insurance companies, check their coverage options, quotes, services and reviews. This will help you find out the specific policy that meets your needs and budget.

source: insurancetrue.com