How Can I Get Rid Of My Mortgage Insurance?

Most home loans with less than 20% down payment are required to include mortgage insurance with the loan. This insures the lender in case of borrower default and minimizes their risk. However, mortgage insurance may still be required even if it’s not typically required by your lender!

Unlike the period before the housing bubble, home mortgage applications undergo a strict set of standards for approval. These standards are known as the underwriting process. Unique situations in employment or credit history may require an additional down payment percentage to avoid PMI (private mortgage insurance). Most underwriting requirements require adequate information on the borrower’s credit and employment history before final loan approval. Self-employed individuals or those with alternative forms of credit may go thru additional scrutiny when dealing with mortgage insurance requirements.pmi for FHA and conventional home loans

Lender-paid mortgage insurance is a popular option with potential homeowners that seek to avoid the cost of PMI. This is where the lender will incorporate payment of private mortgage insurance in exchange for a slightly higher interest rate. This is one example of the points system on a mortgage application that eliminates the cost of PMI. The increase in interest rate may or may not warrant the need for a lender-paid mortgage insurance arrangement.

Strict lending requirements and banking policy now limit the number of mortgages with zero down payment options (although VA loans will continue to offer this). Conventional mortgages and FHA both currently require private mortgage insurance if it is less than 20% down payment. However, FHA loans can be more flexible with the initial down payment requirements with better credit.

The risk protection process may or may not require mortgage insurance in your home loan. FHA mortgage insurance stays for the life of the loan (this means the only way to drop it is to refinance into another type of loan). Conventional loans have a reduction in risk once there is at least 20% equity in the home compared to the principal of the mortgage (normally requiring an appraisal to prove the equity). Don’t hesitate to contact a mortgage professional about potentially dropping mortgage insurance to reduce overall loan costs. If you need a referral to good mortgage professional in San Diego, contact me for assistance.

For more information on this topic:
619.384.2248
Ryan@RyanYourRealtor.com
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