Do I Need Mortgage Insurance?

Information for this post is sourced from Genworth Financial in partnership with the SheHeard Influencer Network.

For the past few weeks my husband and I have been touring model homes in the area. We’re weighing the pros and cons of purchasing a new house to give us the room we desperately need for our family or building up on our current home.

Now when my husband purchased the house we live in now he didn’t know much about the home buying process and kind of went with the flow. And I knew less than him. So when I found out there’s something called mortgage insurance I knew I should research more about the financing involved in purchasing a home. Especially if we were going to purchase a new home together.

After reading 3 Insurance Policies Everyone Should Have I figured I’d research other insurance options out there.

What Is Mortgage Insurance?

Mortgage insurance, also known as mortgage guarantee, is an insurance policy that compensates lenders or investors for losses due to the default of a mortgage loan.

If you don’t pay your mortgage the bank isn’t completely screwed. Since they’re taking a risk on loaning funds to a buyer without a larger down payment they want to make sure that they’re protected.

Mortgage insurance can be either public or private depending upon the insurer.

Traditional Mortgage Insurance

Traditional Mortgage Insurance is a default insurance on mortgage loans provided by private insurance companies and paid for by borrowers. This type of mortgage insurance allows borrowers to obtain a mortgage without having to provide 20% down payment, by covering the lender for the added risk of a high loan-to-value mortgage.

This insurance is not for the borrower. Nope. It’s all for the bank’s insurance. And it comes at the home buyer’s expense.

Lender Paid Private Mortgage Insurance

Lender Paid Private Mortgage Insurance is similar to Traditional Mortgage Insurance except that it is paid for by the lender, and the borrower is often unaware of its existence. Lender Paid Private Mortgage Insurance is usually a feature of loans that claim not to require Mortgage Insurance for high loan-to-value loans. The cost of the premium is built into the interest rate charged on the loan.

Do I Need It?

Are you purchasing a home with less than 20% down? Then you will more than likely need mortgage insurance to qualify for the loan you wish to receive from your lender. Ask questions, find out if the bank you are working requires this type of insurance or if they’ve built the cost into your interest rate.

Be smart, do your homework, and learn a bit about how these loans work before purchasing your first (or second) home. It might be smart to start saving up a down payment now so you can avoid all of the hassle. But if you can’t, don’t worry. There is a way to remove mortgage insurance from your loan.

Have you purchased a home that required mortgage insurance?