What is Mortgage Insurance?
Many first time buyers don’t typically have a lot to put down on a home so zero down or low down mortgage programs appeal to them.
They are a good step in the right direction because owning a home can be one of the best investments you can make.
When applying for low or zero down loans there maybe what’s called “mortgage insurance” added to the payment. Because the bank technically owns the home until the balance of the mortgage is paid in full, they will need some insurance that if the buyer fails to pay the mortgage and the home must be sold in a foreclosure, that all the money pur forth in the sale is not lost.
Mortgage insurance is put in place because with a low or zero down loan there is practically no equity built into the home yet. If the buyer fails to follow through on the payments, the bank will loose money having to turn around and resell the home and incure all the costs necessary in selling a home. By establishing some mortgage insurance, there is protection for such a case.
The drawback is the mortgage payment will be slightly higher each month than if there was no mortgage insurance but the good thing is, once the home establishes enough equity, the mortgage insurance can be removed. Here’s the trick though, most banks will not inform you when the mortgage insurance can be removed. The home owner must call and verify this so it can be removed.
The best way to do this is to stay on top of the equity in the home and keep checking back frequently until the mortgage insurance can be removed. This is typically 1-2 years after purchasing the home.
For more information on mortgage insurance or any Flagstaff real estate, please contact me today!