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Do you need Mortgage Insurance?

BOB KIEBER

For many homebuyers having a twenty percent down payment is next to impossible. Buying a home with less than a twenty percent down payment usually means that the buyer will be adding to their monthly payment by paying for insurance coverage commonly called PMI. PMI is actually Private Mortgage Insurance, coverage that the buyer has no choice in the carrier and just may have as long as they have that mortgage. So you have an Insurance policy that you pay for, you have little to no choice in obtaining and you may be stuck with for a long time, sounds like a heck of a deal.

If you have a twenty percent down payment you can read this article and have a sigh of relief. If you have less than a twenty percent down payment you need to read this article twice.

Mortgage Insurance is an evil that just may be a savior to those buyers with bad credit or little saved for a down payment. Since a borrower is using other people’s money those investors want some level of security on their investment. This insurance provides that level of safety to those investors. Basically, mortgage insurance continues to pay the investors if the actual borrower stops making their mortgage payments. The insurance pays the investors until the borrower comes current with the payments, the borrower sells the property or with the help of the courts system the property is repossessed. Now if you currently have mortgage insurance and you are current in your monthly payments you should read on to see if you can drop this payment.

If you have mortgage insurance and your equity has increased to at least twenty percent of the value of the property, based upon the value of when you purchased the property, you should contact your lender immediately. You will be asked your account number and other information on the mortgage and you need to ask that the mortgage insurance be eliminated. If the lender drops the insurance you are money ahead. If they refuse to drop the insurance you may need to consider refinancing the mortgage.

If you have an FHA mortgage I will tell you right now that the only way to drop the mortgage insurance is to refinance out of the FHA mortgage. FHA requires mortgage insurance for all of their mortgages, no matter how big or small your down payment. Part of the reason for this has to do with the reserve of money that is in itself another pool of money in cases of default.

For those you that are looking to purchase or refinance your current mortgage you should look at obtaining a first mortgage of eighty percent and a second mortgage of five or ten percent. Since the first mortgage is only eighty percent you can avoid the mortgage insurance scenario. But, since the second mortgage lender has a higher risk factor the rate for the second mortgage may be higher than the rate of the first mortgage. Plus, the criteria in the Underwriting process are stricter so not all borrowers will qualify for this type of mortgage.

So as a borrower you need to know what types of programs are available to you and how they may work in your particular situation. I suggest that you contact your friendly neighborhood mortgage professional, such as me, and set an appointment to learn more. Be educated as it is your money.

For answers to your mortgage related questions call Bob Kieber at (970) 262-1199 or e-mail him at rkieber@comcast.net Bob is a local mortgage lender and principal of Resort Lending. He has 30-plus years of professional experience in real estate, finance and investments, and is a longtime resident of the High Country.


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