The Basics of Home Mortgage Insurance
Buying a new home is a big deal for anyone, but perhaps even more so for people on a very tight budget. People who can’t come up with the minimum 20% of the loan as their down payment, for example, are required to get home mortgage insurance. Not to be confused with home insurance, home mortgage insurance protects lenders in case a borrower defaults on his or her payments. It is not required for people putting down 20% or more of the total loan value as their down payment.
Like auto insurance, home insurance, life insurance and other better-known types of policies, home mortgage insurance requires a monthly premium payment and is there to protect against financial loss. In effect, the policy protects a lender in case the borrower defaults on the payments of a home which has lost so much value that it is now worth less than the loan. This way, the lender will not be responsible for making up the difference – and in today’s traumatized real estate market, which has lost trillions of dollars in value since the bubble burst in 2007, that difference can be substantial.
Federal Housing Authority
Many people who are required to get home mortgage insurance seek out the help of the Federal Housing Authority. The FHA works with approved lenders to help people with insufficient means buy a new home by helping them secure home mortgage insurance. Additionally, the FHA offers a discount on mortgage insurance premiums for participants who complete their HELP (Homebuyer Education Learning Program) course.
Private Mortgage Insurance
Home buyers who need it can also get home mortgage insurance from private mortgage insurers. Known as PMIs, their financial requirements for mortgage insurance tend to be more strict than public options, and they tend to require larger down payment amounts.
While the vast majority of home mortgage insurance policies are required by lenders, home owners can also purchase home mortgage insurance voluntarily. Known as mortgage life insurance, people buy it to protect their mortgage payments in the event that they die or become too sick or disabled to pay. Like so many other kinds of insurance, mortgage life insurance buys people peace of mind knowing their homes will be protected in the event there is a major change in financial situations.