What is mortgage insurance?
Mortgage insurance (MI) is a type of insurance that protects the lender in the event that a borrower defaults on their mortgage loan. It is typically required when a borrower makes a down payment of less than 20% of the purchase price of the home. There are two types of mortgage insurance:
- Private mortgage insurance (PMI): This is a type of insurance that is purchased by the borrower and is typically required by conventional lenders. The cost of PMI is typically added to the monthly mortgage payment.
- Government-backed mortgage insurance: This type of insurance is provided by the government and is typically required for government-backed loans, such as FHA loans and USDA loans. The cost of government-backed mortgage insurance is typically added to the loan amount and financed over the life of the loan.
The purpose of mortgage insurance is to protect the lender in case the borrower defaults on the loan. It allows lenders to offer mortgages to borrowers with less than 20% down payment and also helps them mitigate the risk of loss in case of default.
It's important to note that mortgage insurance can add to the cost of your mortgage, so it's important to consider the cost of mortgage insurance when evaluating different loan options. Different loan options may have different mortgage insurance coverage requirements, and our licensed loan consultants can help guide you through different loan options that you may qualify for. Some borrowers may be able to cancel their mortgage insurance once they have built up enough equity in the property, this is known as PMI Cancellation.