Is Mortgage Insurance Worth Paying?
The value of mortgage insurance is different for every potential home buyer. To some, it is a way to get into a larger house or into a house, at all. For others, it is an unnecessary additional expense, only offering an unnecessarily large budget or small down payment. So the value of mortgage insurance is really dependant upon why it would be needed.
Those who need it and are willing to pay generally fall into two categories: they either need to put down less than 20% or they have credit issues. I am using a 20% down payment as a generalization, as there are times borrowers can put down as little as 10% to avoid mortgage insurance, but those are special situations. For most, you need to put down twenty cents for every dollar of the purchase price of a house you are buying to avoid any form of mortgage insurance. So while you can buy a house with as little as 3.5% down, those smaller down payments come at a cost. For some, that is well worth it because it makes homeownership possible, or it makes it possible to buy the right house for their situations.
The other group who generally utilize mortgage insurance are those with credit issues. If the only way to buy a home is with a FHA mortgage because it forgives bad credit history, missed payments, recent bankruptcies, and delinquencies, and because it allows borrowers to have lower FICO scores, then the mortgage insurance is a small price to pay. But for those with good credit and no challenges, it would probably make sense to avoid FHA and, thus, avoid the mortgage insurance.
In the end, there is no set pattern for how you can decide the worth of mortgage insurance until you see what the cost will be and what you will get in exchange. So if I had to answer, I would say that yes, mortgage insurance is certainly worth paying for, but only in the right situation.
If you have any questions about mortgage insurance and its suitability in your situation, please contact me. If you have anything to add about the value of mortgage insurance, please leave a comment.