Understanding Mortgage Insurance

South Carolina homebuyers in Mount Pleasant can rely on Lucey Mortgage Corporation for their mortgage financing and insurance needs. When you budget to purchase a new home, you may need to factor in costs to pay the mortgage insurance premiums. While this insurance may be needed, it is not the same thing as homeowners insurance. Mortgage insurance helps protect the lender in the case the loan goes bad or the buyer defaults. If you make less than a twenty percent down payment on the home, then you can be asked to pay the premiums.

Various Loan Programs and Mortgage Insurance

VA Loans, FHA Loans, and Conventional Loans are all types of mortgage programs with differing requirements for mortgage insurance. Below are some of the differences.

VA Loans do not require mortgage insurance; however, they do come with fees to lessen the burden or risk on taxpayers that help fund the program.

FHA Loans require mortgage insurance since buyers make as low as 3.5% down payments. The insurance typically comes with an up-front fee of 1.75% of the loan amount. Payment can be made at closing or financed into the loan, which will increase the monthly payment. Either way, you will pay a monthly premium on top of your mortgage payment. Rates for premiums may vary from 0.45% to 1.05% of the loan amount per year. However, the rate may vary based on the loan amount, down payment size, and terms. Insurance can be cancelled, typically, as your loan-to-value (LTV) reaches 78%.

Conventional Loans may need Private Mortgage Insurance (PMI) if the down payment is less than 20%. PMI ranges from 0.5% to 1.5% of the original loan amount per year. However, as you pay off the home, you may be able to drop the Mortgage Insurance Premium cost as you re-negotiate. Usually buyers must keep the insurance for two years. You may be able to negotiate and drop the insurance once your LTV reaches 20% but you may asked for a formal appraisal of the home.

Ways to Eliminate Mortgage Insurance Premiums

Costs for mortgage insurance can add up quickly. For example, a $200,000 loan may cost you as much as $167 per month in premiums. Obviously, one can save for a 20% down payment on the home in order to avoid paying. However, if this is not possible, there are steps to cancel once you reach a healthier LTV and meet certain criteria:

  • Submit the request in writing and follow the terms of your agreement.
  • Ensure you have good payment history and are current.
  • Certify (if requested) that there are no other liens on the home.
  • Prove (if requested) that your home value has not declined below original value.

Whatever your situation, we welcome you to contact Lucey Mortgage Corporation in Mount Pleasant, SC for more information on mortgage insurance premiums and terms.