What is mortgage insurance and when is it required?

Mortgage insurance is required by many lenders. It protects the lender if the mortgage defaulted. With conventional loans, mortgage insurance is normally not required if a down payment is made on the home equal to at least 20% of its appraised value. FHA and VA loans, however, have different guidelines that your personal loan officer can explain in detail.

First of all, let's make sure that we mean the same thing when we discuss "mortgage insurance." Mortgage insurance should not be confused with mortgage life insurance, which is designed to pay off a mortgage in the event of a borrower's death. Mortgage insurance makes it possible for you to buy a home with less than a 20% down payment by protecting the lender against the additional risk associated with low down payment lending. Low down payment mortgages are becoming more and more popular, and by purchasing mortgage insurance, lenders are comfortable with down payments as low as 3 - 5% of the home's value. It also provides you with the ability to buy a more expensive home than might be possible if a 20% down payment were required. The mortgage insurance premium is based on loan to value ratio, type of loan, and amount of coverage required by the lender. Usually, the premium is included in your monthly payment and one to two months of the premium is collected as a required advance at ...  more