Can You Avoid Paying for Private Mortgage Insurance?
About Private Mortgage Insurance
Mortgage Insurance (MI) is insurance that protects the lender in case a loan goes into default. It is required on most home mortgages in Massachusetts, Rhode Island, New Hampshire and Maine when the borrower does not have a minimum of 20% down payment. The most recognized MI is PMI (Private Mortgage Insurance). Anytime you have less than 20% equity on a purchase or refinance it is considered a higher risk loan for the lender, which is why mortgage insurance is generally required.
Even if you have an excellent credit record and the financial resources to handle your expected mortgage payments, a lender may still require mortgage insurance for any loan with a down payment of less than 20%.
Typically, MI is required on a loan for a minimum of 24 consecutive payments. After that time, if the borrower has built up 20% or more equity in the property and meets certain other conditions, the borrower may request to have MI removed.
MI can be good for buyers by giving them the flexibility of getting a mortgage with a much lower down payment. Some home buyers can’t afford a 20% down payment. MI allows a buyer to purchase property that they otherwise would have been unable to buy.
Mortgage insurance is a tax deductible expense and will automatically be removed for conventional loans at the time you have paid your loan down to 78% of the original amount or at 80% with a supporting appraisal and request from you to remove it.
For government insured loans such as FHA and VA loans, the mortgage insurance requirements are different. FHA loans have an upfront “mortgage insurance premium (MIP) charge and an ongoing MIP fee. VA loans have an upfront “VA funding fee” unless the Veteran is disabled and no ongoing mortgage insurance fee.
There are other variations of MI offered by different lenders including “self funded MI” and “Lender Paid Mortgage Insurance (LPMI). Please contact us for a more detailed explanation and the opportunity to determine which, if any, MI will meet your home financing goals.
Direct Finance Corp. has originated thousands of home loans in Massachusetts, Maine, Rhode Island and New Hampshire. We find the key to a smooth and successful mortgage transaction is proper upfront education of the process, setting realistic expectations, and excellent ongoing communication. We help each of our clients to be well prepared, to gather the necessary documentation, and to achieve their home financing goals.
Let us help you find the right mortgage today. Call Direct Finance Corp. at 877-499-7283.