Buying a new house is one of the most rewarding and exciting things you can do in your life. Most home buyers will need to acquire a mortgage in order to complete the purchase of their house. This is essentially a loan agreement between you and the bank that lets them obtain possession of the house if you fail to make your monthly payments. You may also be required to purchase private mortgage insurance before getting approved for the loan.
What is Private Mortgage Insurance?
Private mortgage insurance is a special form of insurance that protects the lender if you are suddenly unable to make your mortgage payments. This insurance allows the lender to recoup their money if they are forced to foreclose on your house. Private mortgage insurance is typically required when getting a conventional home loan with a down payment of less than 20 percent of the home’s value. There is more risk associated with these loans, so the lender requires an extra insurance payment to help cover their risk.
Should I Get Private Mortgage Insurance?
Since it provides absolutely no benefits to you, it is best to avoid getting private mortgage insurance if possible. Unfortunately, this is hard to do for a lot of home buyers. Adding the insurance to the mortgage is often the deciding factor between getting approved or denied for the home loan. There are a large number of buyers that cannot buy their dream home without adding private mortgage insurance. This is the only time you should ever consider the extra expense. The two best ways to avoid private mortgage insurance are by raising your credit score and saving more money to apply to the down payment.
How is it Paid?
Private mortgage insurance is paid directly through your monthly house payment. The lender helps you acquire the insurance from a private company. They then add the cost of the premiums directly to your home loan. You essentially have no interaction with the private insurance company after the mortgage is acquired. This gives the lender peace of mind knowing the premiums will be paid every month.