Finding a proper mortgage loan and understanding the processing procedures behind the loan is the basis of good research. The down payment on a mortgage loan is typically significant when dealing with mortgage insurance.
Most loan applications with less than 20% down payment are required to include mortgage insurance with the loan. However, mortgage insurance may still be required even if it’s not typically required by your lender.
Underwriting Requirements
Most home mortgage applications undergo a strict set of standards for approval. These standards are known as underwriting and make up the bulk of time spent on a mortgage application. Unique situations in employment or credit history may require an additional down payment percentage to avoid PMI or private mortgage insurance.
Most underwriting requirements require adequate information on the borrower’s credit and employment history for complete application. Self-employed individuals or those with alternative forms of credit may need a few additional hoops to jump through when dealing with mortgage insurance requirements.
Lender-paid Mortgage Insurance
Lender-paid mortgage insurance is a popular option with potential homeowners that seek to avoid the cost of a PMI or FHA-backed insurance on a home loan. Most lenders 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.
What’s Involved With Risk Assessment?
Strict lending requirements and banking policy now limit the number of mortgages with zero down payment options. Conventional mortgages and FHA both 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 adequate credit. FHA mortgage costs are now for the life of the loan. Lenders will look at mortgage insurance as risk protection.
The risk protection process may or may not require mortgage insurance in your home loan. For example, VA and USDA loans do not usually require mortgage insurance if the borrower’s credit and employment history are adequate.
Conventional loans have a reduction in risk once there is at least 20% equity in the home compared to the principal of the mortgage. Don’t hesitate to contact your trusted mortgage professional about potentially dropping mortgage insurance in the future to reduce overall loan costs.
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About the Author:
Babak Moghaddam graduated from University of Southern California in 1985. He entered the mortgage industry as a compliance auditor at the Bank of New York in 1986 and completed his masters in Business Administration two years later. After seventeen years in the traditional mortgage banking world Babak finally transformed this vision into his own practice in 2002 when he formed Charter Pacific Lending Corp, a mortgage company that has provided over $900 Million in residential real estate loans throughout Southern California. Babak and his team do things a little differently than other mortgage providers. They work as financial advisors, because they have come to realize that a mortgage is a very powerful financial tool. And just like any other financial tool, it should be managed as part of the overall financial management plan to reach every home owner’s long and short-term financial goals much faster. You can contact Babak for a free consultation and strategy session at (800) 322-1217 X103.