What is mortgage insurance and how does it work?
Mortgage insurance lowers the risk to the lender of making a loan to you, so you can qualify for a loan that you might not otherwise be able to get.
Typically, borrowers making a down payment of less than 20 percent of the purchase price of the home will need to pay for mortgage insurance. Mortgage insurance lowers the risk to the lender of making a loan to you, so you can qualify for a loan that you might not otherwise be able to get. But, it increases the cost of your loan. If you are required to pay mortgage insurance, it will be included in your total monthly payment that you make to your lender, your costs at closing, or both.
Mortgage insurance, no matter what kind, protects the lender – not you – in the event that you fall behind on your payments. If you fall behind, your credit score may suffer and you can lose your home through foreclosure.
Loan types and mortgage insurance
There are several different kinds of loans available to borrowers with low down payments. Depending on what kind of loan you get, you’ll pay for mortgage insurance in different ways:
- Conventional loan
- Federal Housing Administration (FHA) loan
- Department of Veterans’ Affairs (VA)-backed loan