Inexperienced and experienced buyers alike often do not understand the purpose of mortgage insurance or the different types available. Mortgage insurance is insurance that you (the borrower) pay to insure that in the event of a foreclosure the lender gets reimbursed for their costs to process the foreclosure.
FHA loans have mortgage insurance that is backed by the Federal Housing Administration (FHA). You pay mortgage insurance on FHA loan regardless of the size of your down payment. FHA recently changed their mortgage insurance rules to require that monthly mortgage insurance stays on their loans for the life of the loan for all new case numbers. This is different to their prior policy that removed monthly mortgage insurance when your loan balance got to 78% of the original purchase price.
Conventional loans have mortgage insurance that is backed by Private Mortgage Insurance companies. You pay mortgage insurance on conventional loans when you do a down payment that is less than 20%. There are a limited number of Private Mortgage Insurance companies, so their rates are generally the same. However, if you have a good loan officer, they will shop with the various mortgage insurance companies and choose the one with the best rate. This is something we practice at Uptown Mortgage as a matter of course.
Conventional loans allow you to structure your mortgage insurance to be paid monthly, up-front in the form of a single premium, or partially upfront and partially in a monthly payment (called split premium). We will show you the comparison of monthly MI to upfront MI. We rarely do the split premium, but can show you this as well. Ask us today for your comparison so you can see how much you can save with the different options available.