If you are looking for a low down payment conventional mortgage or an FHA mortgage, chances are you will hear about mortgage insurance. However, this is, unfortunately, another one of those areas of the industry rife with misconceptions. I have had customers who thought mortgage insurance would literally double their payments, and other who thought it would automatically go away after one year, regardless of the status of the mortgage. I have had clients who thought it was an extra fee charged which could be waived, and others who thought it was a requirement for every loan in every situation.

Obviously, none of that is true. What mortgage insurance actually is, is insurance on your loan. This insurance allows lenders to offer financing to borrowers who have very little “skin in the game” – who put very little down on a house. This insurance protects the lender in the event a borrower defaults. So, in exchange for paying your portion of the insurance costs, a lender is willing to lend you the money to purchase your house with smaller down payments.

Of course, that does mean there will be a cost to you. But, that cost is usually insignificant, can depreciate with time, and often goes away completely. The only way to determine the actual cost of mortgage insurance for you is to contact a qualified mortgage officer who can give you the numbers. And while there are some differences in how mortgage insurance works between a conventional and FHA loan, it alone should not be a determining factor for your mortgage, just a consideration.

If you would like more information about mortgage insurance, how it will affect you, and if a loan with mortgage insurance is right for you, please contact me. And if you have anything else to add about mortgage insurance, please leave a comment.