Homebuyers are hopeful to close on their new purchase. However, they end up getting derailed when they don’t have quite enough money for a down payment. Private mortgage insurance is a way to buy a home and not have to put quite as much money into the home initially.
Typically, lenders require 20% of the purchase price to be paid in order to obtain a loan. Private Mortgage Insurance enables homebuyers to make their dream purchase without having as large of a down payment.
Mortgage Insurance Benefits
Most people consider mortgage insurance as a lender benefit. However, this insurance can be a help to homebuyers too. Here is a brief list of ways that home buyers can reap some benefits of mortgage insurance:
- Homeownership can come more quickly, because the down payment won’t have to be as high.
- You can hold more of your money in the bank for a little extra cash flow, rather than putting it into a down payment.
- Quite possibly, a loan that includes mortgage insurance will be approved faster.
- Once the insurance is no longer needed, then it can be cancelled which will save you money in the future.
Mortgage Insurance Options
Buying a home is one of the biggest decisions that you will make financially. Since that is the case, you will want options to consider and weigh out. There are several options for this kind of insurance.
3 options include:
Buyers pay their mortgage insurance monthly, because it’s included in their monthly payment amount. Typically, homeowners have the chance to cancel the insurance when their loan amount drops to about 80% of their home’s value.
Paid up front
Some lenders allow a buyer to pay their private mortgage insurance in advance at closing.
In this scenario, the buyer can pay part of the mortgage insurance upfront at closing. The rest of the insurance will get put into the monthly mortgage payment.
There is much to be considered when it comes to mortgage insurance. If you look at all of your options and weigh the pros and cons, then you’ll be able to make a more educated decision.
Mortgage insurance protects the lender, but also will allow an anxious homebuyer to get to the closing table faster and without as much money in hand.