If you’ve bought a home and put less than a 20% down payment down, you’re familiar with mortgage insurance. It’s that added amount on your statement every month you wish you could get rid of. The good news is you might be able to.
Homes with less than 20% equity in it are more risky for lenders and the lender requires that you pay for insurance. This goes to another company that will pay back the lender if you were to foreclose on the home.
If you get a conventional loan, your lender will set up what is called Private mortgage insurance (PMI) and the rates vary by down payment and credit score but are generally cheaper than FHA rates for borrowers with good credit.
Private mortgage insurance is typically paid monthly with your principal and interest payment. Once you hit 20% equity in your home you can request an appraisal from your mortgage company and drop this payment altogether.
This will naturally drop off when you’ve made enough payments and it get’s to 78% loan-to-value.
If you get an FHA loan now the mortgage insurance cost is the same no matter your credit score and you are not allowed to drop the mortgage insurance premium when you hit 20% equity. You will either stick with it or refinance to a conventional loan. It wasn’t always this way.
If you got your FHA loan before June 2, 2013, you can drop it at 20% just like a conventional loan.
VA loans have the VA guarantee which replaces mortgage insurance and works the same. There is an up-front funding fee that varies based on many things that your lender can go over with you.
Sometimes this is all paid up front and sometimes it’s calculated into the monthly payment.
Many people are in a much stronger equity position today with prices having increased so much over the last few years. You might be surprised to find out that you could drop your mortgage insurance and save all that money every month.
I’m offering a Free Mortgage Insurance review to see if you should request from your lender to drop mortgage insurance from your payment.