When you purchase a real estate, many times you will have to pay a downpayment. This can range in amount and is generally around 20%. However, with mortgage insurance, you can have a much lower down payment. Lenders mortgage insurance (LMI) or private mortgage insurance (PMI) is a premium that the borrower, you, will pay to the lender. This premium ensures the lender if the loan goes into default (foreclosure).
This protection of the lender is the responsibility of the borrower. It can be paid up front or it may be built into the price of the mortgage rate. When your downpayment is less than 20% of the home's value, lenders and mortgage companies fear that the chance of default goes up. Although having a lower downpayment is a good thing, this added cost may tip the scales in favor of a higher downpayment. Discuss this with your lender or mortgage company to determine which will be the most cost effective plan for you and your mortgage. Your home loan or mortgage can be of any type in order to use mortgage insurance. VA loans typically do not have downpayments, but sometimes they are required by the lender. Your lender or mortgage company can work with you to explain their policies and decide whether mortgage insurance is something you'll need to have, whether you have a VA loan or not.
Many mortgages qualify for mortgage insurance. Although many people may see mortgage insurance as a burden, it can also help many people to afford a higher priced home when purchasing or refinancing real estate. By not paying as large of a downpayment, homeowners can save money in the beginning and pay the extra cost of mortgage insurance each month with their fixed mortgage rate or adjustable mortgage rate. Needing mortgage insurance is something only your lender can help you with, so be sure to discuss all of your options and get several mortgage quotes from various lenders and mortgage companies so that you save the most money as you embark on this home buying process.