You Ask, We Answer: What Are the Pros and Cons of Private Mortgage Insurance?

It’s easy to get Private Mortgage Insurance (PMI) confused with homeowners’ insurance, but PMI is an entirely different thing that may or may not be necessary when it comes to your home purchase. If you’re going to be investing in a home in the near future and are wondering what PMI may mean for you, here are some things to consider regarding this type of insurance.

Your Down Payment Amount

If you’ve been perusing the housing market for a while, you’ve probably heard that 20% is the ideal amount to put down when investing in a home; however, you might not realize why. The truth is that 20% down is the suggested amount because this will enable you to avoid having to pay PMI on the purchase of your home. In this regard, PMI is a protective measure for lenders since they may be taking on more financial risk with those who have less equity built up in their homes.

Getting Into The Market

For those who want to get into the real estate market right away and only have 10-15% to put down, PMI can be a means of being able to invest before mortgage rates increase. While buying a home when you want can certainly be a benefit, it’s also worth realizing that PMI is an additional fee and will impact the total cost of your home loan. It may be a risk worth taking if you want to buy now, but if it’s the total cost you’re considering, it may be better to save more before buying.

Getting Money Back

Whether you’re a homeowner or not, most people don’t look forward to tax time no matter how much money they get back. However, if you have PMI for your home, you’ll not only be able to get a variety of tax deductions, but you will also be able to get back some of the money that you invested into your private mortgage insurance. It may not be enough of a deduction to compete with saving up, but if you’ve found the perfect home the deductions can serve as an added incentive.

While you’ll only be required to pay PMI if you put down less than 20%, it can be a benefit if you’re looking to purchase a home right away. If you’re currently pursuing your options on the real estate market, reach out to one of our mortgage professionals for more information.

Reasons You Need an Insurance Binder and How to Get One

When a borrower applies for a mortgage loan, the lender typically requires proof of insurance coverage before they approve the loan. An insurance binder is a document issued by the insurance company that provides temporary proof of insurance coverage until the official insurance policy is issued.

The insurance binder for mortgage loans will typically include information about the property being insured, the coverage limits, and the effective date of the policy. The lender will review the insurance binder to ensure that it meets their requirements for coverage and will usually require the borrower to maintain insurance coverage for the duration of the mortgage loan.

How to Get a Mortgage Insurance Binder:

  1. Choose an Insurance Provider: You typically obtain mortgage insurance from private mortgage insurance (PMI) companies or the Federal Housing Administration (FHA) for government-backed loans. Your lender can recommend PMI providers if you’re not sure where to start.
  2. Application: Once you’ve chosen an insurance provider, you’ll need to complete an application for mortgage insurance. This application will include details about the property, your financial situation, and your loan terms.
  3. Underwriting Process: The insurance provider will review your application and assess your creditworthiness. They will also evaluate the property to determine its insurability.
  4. Insurance Premium: You will be required to pay an insurance premium for your mortgage insurance. This can be a one-time premium, a monthly premium, or a combination of both, depending on the type of mortgage insurance and your specific loan terms.
  5. Obtain the Binder: Once your application is approved and you’ve paid the premium, the insurance provider will issue a mortgage insurance binder. This is a document that confirms you have mortgage insurance in place.
  6. Provide to Lender: You will need to provide the mortgage insurance binder to your lender as part of your mortgage application. The lender will then include this information in your loan file.
  7. Ongoing Premiums: If you have monthly premiums, remember to keep up with these payments for the duration of the mortgage. Failure to pay the premiums could result in the cancellation of your mortgage insurance.

It is important for borrowers to understand that an insurance binder is a temporary document and should not be used as a replacement for the official insurance policy. It is also important to review the insurance policy carefully to ensure that it provides the necessary coverage for the property being insured.

The Top Questions To Ask A Mortgage Lender

The Top Questions To Ask A Mortgage LenderWith many people interested in taking out a home loan, it is critical for potential homeowners to think carefully about which loan structure is right for them. There are a lot of home loan options out there, and potential homeowners need to make sure they consider the benefits and drawbacks of all options. This means asking the right questions. What questions do you need to ask your mortgage lender?

How Big Of A Down Payment Do I Need?

The first question you need to ask your mortgage lender is about the down payment you need to make. A smart rule of thumb is that you need to put 20 percent down for your house; however, this is a large sum of money that many people do not have. If you are buying a home for the first time, you might be able to get a home for 3.5 percent down. Always talk to your mortgage lender about this issue.

Is My Credit Score High Enough?

Next, talk to your mortgage lender about your credit score. The higher your credit score, the easier it will be for you to qualify for a home loan. You may want to talk to your mortgage lender about your credit report to see if there are any inaccuracies that need to be fixed.

Do I Need To Get Mortgage Insurance?

Do not forget to ask your mortgage lender if you need to get mortgage insurance. If you put less than 20 percent down on your house, you might need to get insurance, but your premium should go down as your equity goes up. Then, once you reach 20 percent equity in your home, you should be able to get rid of mortgage insurance. Clarify this with your mortgage lender.

Find The Right Home Loan For Your Needs

These are a handful of the top questions you need to ask your mortgage lender if you are thinking about taking out a home loan. With so many loans available, it is easy to get confused. Remember that the right loan for one person is not necessarily the right loan for you. Your mortgage lender can help you put yourself in the best position possible to be successful.