As with any item in your life that costs a lot of money, insurance is needed to protect it. From your car to your body, insurance keeps you from paying full price when something goes wrong.
Mortgage insurance exists so that the lender is protected when something goes wrong. They are reimbursed for their losses if you default on the home loan.
Even though you wouldn’t consider the mortgage a physical item like your vehicle or your physique, it’s best to picture the mortgage as a large stack of money. This is essentially what it is and the lender does not want to hand it all over to you without knowing they’ll be paid back if you fail to pay them.
MORTGAGE INSURANCE FOR CONVENTIONAL LOANS
Conventional loans have Private Mortgage Insurance (PMI) at 0.3 percent to 1.5 percent of the loan’s amount. This can be paid through monthly premiums, or as a one-time installment. If you provide a down payment of 20 percent or more, you can skip having PMI. If you cannot leave this large of a down payment, the good news is that PMI is tax deductible.
MORTGAGE INSURANCE FOR USDA HOME LOANS
Along with having a no down payment requirement, the USDA home loan benefit for use on rural properties will be appealing to consumers due to not having a requirement for private mortgage insurance. This will make the value of your rustic or suburban home more appealing when you are saving all this money.
MORTGAGE INSURANCE FOR VA HOME LOANS
The VA home loan benefit is wonderful for veterans, active duty and qualifying spouses who want a home loan at zero down. An added bonus for this program is that private mortgage insurance is not required. This frees up quite a bit of money for military families to find their ideal home.
MORTGAGE INSURANCE FOR FHA HOME LOANS
If you are not qualified for the VA home loan and either overqualified for, or not interested in the USDA home loan, the FHA is the best option. The interest rate for this home loan is typically lower than conventional and has easier qualification standards to be met.
Private mortgage insurance is needed for this loan, but it goes under the name of MIP (Mortgage Insurance Premium) yet is still tax deductible. If you were to place a 20 percent down payment or more on your FHA funded home, you can bypass needing MIP, but most enjoy the FHA home loan option due to only having to give a 3.5 percent down payment.
There will
be a single, upfront MIP payment which will be 1.75 percent of the loan’s value. There will also be the annual MIP broken apart into a monthly premium.
Since you are seeking an FHA home loan that is dated past January 26th of 2015, you will pay 0.45 to 0.70 percent annual MIP of any loan over or under $625,000 with a term of repayment lower than 15 years. For a loan where you’d repay it over a 15 year period of time, the percentage paid would range from 0.80 to 1.05 percent. This is an improvement over the past rates and is great news if new home owners want more time than 15 years to pay off the mortgage.
If you have an FHA home loan that is less than 36 monthly payments old and you wish to refinance it, you can be eligible for a refund credit on the Upfront MIP towards the new transaction. Either way, you have options to save more money when seeking out the FHA home loan option.
If you are excited to find your dream home, we will help you fund it with a federal home loan and match you with a Realtor®! Call us at 877-432-LOAN(5626), chat with us on this site, or tweet us @fedhomeloan.
