Mortgage Insurance
Candlefocus EditorPrivate Mortgage Insurance (PMI) is a type of mortgage insurance common on home loans with low down payments, usually below 20%. PMI is generally required when the loan-to-value ratio of a home loan is greater than 80%. PMI protects lenders from default and allows buyers to obtain a mortgage with a lower down payment. PMI rates are typically based on the borrower’s credit score, loan-to-value ratio, and the length of the loan.
The Qualified Mortgage Insurance Premium (MIP) is an insurance premium charged on certain loans backed by the Federal Housing Administration (FHA). MIP is required if the loan-to-value ratio of a loan is more than 90%. This type of mortgage insurance is intended to protect lenders from default. It is paid for by the borrower and is paid in either an upfront lump sum or can be financed as part of the loan.
Mortgage title insurance is required in order to protect lenders against any claims on the title of the home due to past or unresolved title issues. This type of insurance is generally purchased at the time of closing but can also be obtained separately.
Overall, mortgage insurance is an invaluable form of protection for lenders and borrowers alike. Even smaller home loans can require a substantial down payment and thus can benefit from the security of mortgage insurance. Borrowers should inquire about the different types of mortgage insurance available and make sure to read the fine print before signing a mortgage loan agreement.