The largest credit union in the United States, Navy Federal Credit Union, has found itself embroiled in controversy following a recent report that highlighted significant racial disparities in its mortgage lending practices. The report, published by CNN, revealed that Navy Federal approved significantly fewer mortgage applications from Black and Latino borrowers compared to white borrowers. […]
Mortgage insurance
Mortgage insurance is a crucial aspect of homeownership, safeguarding your investment and ensuring you can maintain your dream home. It’s a valuable financial tool that protects lenders from potential losses in case of borrower default, allowing you to qualify for a mortgage with a smaller down payment.
Why is mortgage insurance important?
Lenders consider the risk involved in lending money to purchase a home. A lower down payment indicates a higher risk for the lender, as the borrower’s equity in the property is lower. This is where mortgage insurance steps in, protecting the lender by providing coverage for a portion of the outstanding loan balance in case of default.
Types of mortgage insurance
There are two primary types of mortgage insurance:
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Private mortgage insurance (PMI): This type of insurance is offered by private insurers and is typically required for mortgages with a down payment of less than 20%. PMI premiums are added to your monthly mortgage payments until you reach 20% equity in your home.
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FHA mortgage insurance (FHA MI): FHA loans are backed by the Federal Housing Administration (FHA), and FHA MI is mandatory for all FHA loans. FHA MI premiums are typically lower than PMI premiums, but they are also permanent and remain in effect for the life of the loan.
Benefits of mortgage insurance
Mortgage insurance offers several benefits to borrowers:
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Qualify for a lower down payment: By reducing the required down payment, mortgage insurance enables you to purchase a home with a smaller upfront investment.
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Reduce monthly payments: By spreading out your down payment over time, mortgage insurance can lower your monthly mortgage payments, making homeownership more affordable.
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Protect your investment: In case of default, mortgage insurance ensures that the lender is compensated, protecting your homeownership and preventing foreclosure.
When can you cancel mortgage insurance?
You can typically cancel PMI once you reach 20% equity in your home. Equity is the difference between the current market value of your home and the outstanding balance of your mortgage. Once you reach 20% equity, you can request a cancellation of PMI.
Mortgage insurance: A smart investment in your future
Mortgage insurance is an essential financial tool that can make homeownership more accessible and affordable. By understanding its benefits and when you can cancel it, you can make informed decisions about protecting your investment and securing your homeownership dreams.
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