One of the most common questions that buyers have is: What is mortgage insurance and when do I have to get it? In our podcast we sat down with Elena Boland, of Wholesale Mortage, to learn more details. Mortgage insurance is essentially an insurance against loss, paid as a monthly fee when putting anything less than 20% down on most loan types. These fees are paid into entities such as government reserves or private mortgage insurance reserves that help pay for foreclosures or back up any losses for banks.
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The big question for most buyers is whether they can get rid of mortgage insurance and, if so, how. The answer depends on the type of loan you have. For FHA loans, many loan officers believe that the only way to get rid of mortgage insurance is to refinance out of the loan. However, after 11 years of paying into the loan, an FHA borrower can ask for an appraisal to be done and, if they have 20% equity, they can get rid of the mortgage insurance. However, it's important to note that this must be done through the servicer of the loan, and steps can vary by bank.
Conventional loans have a bigger advantage when it comes to getting rid of mortgage insurance, as they require 24 months of payments once the borrower has reached 20% equity. This can be done through a simple call to the servicer to get through the steps with them, and though it's not as fast as refinancing, it's worth the legwork to get it done.
Finally, it's important to note the difference between PMI and MI. PMI is private mortgage insurance that covers the conventional pocket of all banks, while MI is mortgage insurance from government-backed entities such as FHA, USDA, and VA. Monthly mortgage insurance fees are collected and placed in reserves to cover foreclosures or short sales, and they can't be used for any other purpose.
Mortgage insurance is an important consideration for buyers and should be thoroughly understood before purchasing a home. With the right knowledge and steps, borrowers can eventually get rid of mortgage insurance and enjoy the benefits of owning their own home.
If you are getting ready to purchase a new home, understanding your options for your mortgage is crucial. I am happy to connect you with my recommended mortgage companies to help you understand your budget and mortgage options. Feel free to reach out any time at 775-525-0309 or drop us an email here.
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