
As a potential home buyer in Houston, one of the many considerations you will have to make is whether or not you will need to pay for mortgage insurance. This is a type of insurance that protects lenders in the event that a borrower defaults on their mortgage payments. If you are considering buying a home and are unsure about mortgage insurance, here are some important things you need to know.
There are two types of mortgage insurance that may be required when taking out a loan: private mortgage insurance (PMI) and mortgage insurance premiums (MIP). Private mortgage insurance is typically required for conventional loans with less than a 20% down payment. On the other hand, mortgage insurance premiums are required for FHA loans, regardless of the down payment amount.
The premium amount for mortgage insurance can vary, depending on factors such as the type of loan, the borrower's credit score, and the size of the down payment. Private mortgage insurance typically ranges from 0.5% to 1% of the loan amount per year. Mortgage insurance premiums for FHA loans can range from 0.45% to 1.05% of the loan amount per year.
The length of time you will have to pay for mortgage insurance also varies depending on the loan type. For conventional loans, mortgage insurance can typically be canceled once the borrower reaches 20% equity. However, for FHA loans, mortgage insurance must be paid for the entire loan term, which can be up to 30 years.
While mortgage insurance is a requirement for some loans, there are ways to potentially avoid paying for it. One option is to save up for a larger down payment. Another option is to look into alternative loan programs such as a piggyback loan (a combination of a first and second mortgage) or a VA loan (available for military personnel). In conclusion, mortgage insurance is an added expense that Houston home buyers need to be aware of before taking out a loan. It is important to carefully consider the type of loan you are taking out, the amount of the down payment, and the length of time you will have to pay for mortgage insurance. And if possible, explore alternative options to potentially avoid this added cost. Happy house hunting!