Mortgage insurance, sometimes also known as Private Mortgage Insurance or PMI, often causes a lot of issues for home-buyers in America. People who have a mortgage on their property often find their monthly mortgage payments to have increased because of mortgage insurance.
What is mortgage insurance?
The basic thing about loans is that they are risky. When a lender is offering you a loan, they are taking a risk and that is the reason why they look for ways to lessen the risk. Most of the times they ask for a down-payment, which in some cases can go up to 20% of the total loan amount. Now, sometimes people are unable to arrange for the down-payment. Lending to them would be even more risky. That’s the reason why lenders try to mitigate the risk by getting an insurance which would protect them if you fail to pay the loan. This is called mortgage insurance. In most cases the lender would ask you to pay for the premium and that amount gets added to your monthly mortgage payment.
Is private mortgage insurance beneficial for you?
Private mortgage insurance helps you to get a loan even if you can only arrange for a down payment of as little as 3% of the loan amount. This makes the loan a bit easy on the pocket as you don’t have to pay huge amount of money upfront as a down payment. However, since the premium gets added to monthly mortgage payments, which might put a stress on your monthly budget. You don’t have to pay for PMI throughout the duration of the loan. When the mortgage balance goes under 80%, you don’t have to pay for any private mortgage insurance.
Is there a way to avoid paying mortgage insurance?
Well, conventional loans and even most government backed loans, including FHA Loans, need you to pay for mortgage insurance. However, you can get relief from such insurance if you get a VA Loan. The Home Loan Guaranty Program of the Department of Veteran Affairs (VA) of the U.S Federal Government guarantees the home loan taken by veterans and active duty members of the U.S Armed Forces and their family members.
Eligibility for VA Loans
The following people are considered eligible for a VA Loan –
- An active member of the Military who has served for more than 90 days
- Veterans who have served for more than 90 days during wartime or 181 days during peacetime.
- Member of the National Guard or Reserve who have served for more than six years.
- People who have been dishonourably discharged from duty.
- Unmarried spouses of deceased, disabled, P.O.W. or M.I.A veterans.
EmoticonEmoticon