What is Mortgage Insurance?
Generally Mortgage Insurance (or MI) is required if the loan amount is 80% or more of the value of the home. MI protects the lender against loss in the event of default. In most cases this insurance can be dropped once the loan amount has been brought down to less than 80% of the home value. MI is also required on all FHA secured loans.
Mortgage insurance protects the mortgage lender against loss in the event of default by the borrower. This allows lenders to make loans with lower down payments. On FHA loans this insurance is referred to as MIP (Mortgage Insurance Premium) and is required on all FHA loans. On Conventional loans this insurance is referred to as PMI (Private Mortgage Insurance) and is generally only required if the loan-to-value exceeds 80%.
Private mortgage insurance and government mortgage insurance protects the lender against default and allows the lender to make a loan which the lender considers a higher risk. Lenders often require mortgage insurance for loans where the downpayment is less than 20% of the sales price. Mortgage insurance should not be confused with mortgage life, credit life or disability insurance, which are designed to pay off a mortgage in the event of the borrowers death or disability.
A. Mortgage Insurance insures lenders in the event of a borrower’s foreclosure. It is paid for by the borrower, and allows lenders to grant loans that they otherwise would not consider. Depending on credit scores and loan structure, mortgage insurance may be required when the down payment is less than 20%.
