Tuesday, January 15, 2008

How to Understand Mortgage Insurance


Mortgage insurance is a government-administered program that provides security to the lender against financial loss that may be caused by a borrower’s default in loan repayment. Mortgage insurance is needed when you provide less than a 20 percent down payment when buying a house. The Federal Housing Administration (FHA) charges a mortgage insurance premium (MIP) on FHA loans.


Difficulty: Moderate



Step One

Remember that mortgage insurance primarily aims to safeguard the lender. However, it also puts the borrower in the defaulter list, which may make it almost impossible for him or her to get a future loan if they default on a loan with mortgage insurance.

Step Two

Bear in mind that mortgage insurance is usually recommended when the down payment on property to be insured is less than 20 percent of the value of the purchased property.

Step Three

Ensure that the lender lowers the down payment as mortgage insurance provides security against loss.

Step Four

Collect the details of the policy that the lender is going to buy. The borrower pays the premium for this policy along with the monthly mortgage payment.


Step Five

Bear in mind that in order to qualify for mortgage insurance, there are certain terms and conditions laid down by the Federal National Mortgage Association. These include borrower’s qualifications, type of property and the size of mortgage.

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