When purchasing a house, you need to verify the different types of insurance you are required to have on your new home. There is the typical homeowner’s insurance policy, a mortgage life insurance policy, and the specific type I will discuss today, mortgage insurance, also known as private mortgage insurance, or PMI.
Here is how you can know which home mortgage insurance you should purchase.
What is Private Mortgage Insurance?
First and foremost, private mortgage insurance protects the lender in the case you cannot make payments and default on your home loan, not the borrower.
Home mortgage insurance lowers the risk to the lender making the loan to you. The policy helps you qualify for a loan that you might not be able to get otherwise.
When is PMI Required?
Typically, you are required to get PMI if you are making a down payment of less than 20% of the purchase price of the property. In other words, if you are making an all-cash offer on a home, you will not probably need a mortgage insurance policy.
Mortgage insurance will be either part of your total monthly payment, your costs at closing, or both. Depending on your lender, once you reach the date when the principal balance of your mortgage is scheduled to fall to 80% of the original value of your home, you can request to have the PMI canceled.
The date should be given to you in writing on a disclosure form when you receive your mortgage. Otherwise, you can get automatic or final PMI termination at specific home equity milestones.
Differences Between Mortgage, Homeowner’s & Life Insurance Policies
While mortgage insurance protects the lender, homeowner’s and life insurance policies protect the contents of your home and the people who rely on you. Homeowner’s and mortgage life insurance are the other two policies commonly purchased before acquiring a mortgage
The homeowner’s policy is one any homeowner should have in case of a loss from a natural disaster or an accident.
Mortgage life insurance is a term life insurance policy created specifically to repay mortgage debts and associated costs in the event of a borrower’s death. This type of policy is not required and is more of a personal decision when considering the future.
Mortgage Insurance & Pre-Approvals
Not only are all lenders different, but there are also other types of loans. Government-backed FHA and VA loans have different rules so it is in your best interest to speak with various lenders and ask questions about mortgage insurance when getting pre-approved and choosing
your lender and loan type.
I hope this was informative, and as always, if you’re looking for property in the High Country, please contact an agent from 828 Real Estate!