Hi, I'm RJ Baxter with Intercap Lending. With your tip of the week mortgage insurance. This is a commonly misunderstood concept and I wanted to explain a little bit about what mortgage insurance is, why you might need it, and what to watch out for with mortgage insurance. So first of all, mortgage insurance is a policy that protects the lender, not you, in case you were to default on your house. So if your house is foreclosed, the purpose of mortgage insurance is to ensure that the lender at least gets made a whole as far as how much they owe on the mortgage, plus the cost to essentially unload your house. They don't want to have your house, they just want to get rid of it and get that mortgage paid off. So the mortgage insurance is kind of like gap insurance. 

So let's say you owe $200,000, they can only sell the house for 190, plus they have some expenses. The mortgage insurance would cover that difference. Now, mortgage insurance is required on a conventional loan anytime you have less than 20% down payment. And it makes sense because less than 20% down payment, you're more likely to be underwater on the house at the time of foreclosure. Now, the mortgage insurance rate is influenced by a lot of factors. The two biggest ones that it's influenced by is credit score and also down payment percentage. So a higher credit score, lower mortgage insurance if you put more down, lower mortgage insurance, less down, higher mortgage insurance. So the rate goes down in 5% increments, with the highest mortgage insurance being with 3% down payment, and then in 5% increments after that. 

So it gets lower at 5% down on a conventional loan, lower at 10% 15%, and then of course 20% down. There's no mortgage insurance now on an FHA loan, it's standardized, it's mandatory no matter how much you put down. And the rate is almost the same no matter how much you put down. So if you put three and a half percent down, the minimum on an FHA loan, the mortgage insurance is the highest rate. If you put 5% or more down, the mortgage insurance is slightly less. And if you put 10% more or more down, then you cancel the mortgage insurance after eleven years, less than 10% down, FHA, it's for the life of the loan, so you have to refinance to get out of it on a conventional loan. 

The good news is you cancel the mortgage insurance after two years if you have at least 20% equity. Now, there's other factors that go into this as far as determining your rate. For example, if you use a community assistance type program, there's a variety of them, then the rate of the mortgage insurance is lower for those programs. So that's good news. But just call me and we can go through your options on this. Talk about what mortgage insurance looks like, what that rate might be for you and what to be prepared for. So once again, my name is RJ Baxter intercap Lending. Have a great rest of your day. 

Learn more information at http://www.cohomesandloans.com
RJ Baxter
Intercap Lending
http://www.cohomesandloans.com
303-670-0137
baxterteam@intercaplending.com
NMLS #395819