What is the Mortgage insurance premium?
Hello everyone. Today we will discuss FHA loans,but specifically mortgage insurance premiumand what it is. Why the bank requires it, and when you can get rid of it.
So, if you haven't visited my page before, my name is Miguel Gomez, and at Top Level Home Loans, we take care of giving you advice and strategies for obtaining that home loan.
Many clients have asked me
why the FHA closing expenses are a little higher.
The reason for this is because mortgage insurance premium, of the mortgage insurance premium, which is an insurance that the bank charges for making a fha loan.
This insurance is separated into two parts. The first is that they charge you 0.85% of the debt that you possess on a monthly basis. They also charge you 1.75% up front, which is a charge that they make to you as a fee for commencing the policy, and you have the option of paying the entire policy or the first six months in full, or you may have it financed.
In the 8 years I've been doing this, I've never had a client pay for it up front or all at once, because when they finance it, it's easier to split it after 30 years.
I don't think it would be a good option to pay all that money at once, when it is not necessary either and they are telling you that they will let you finance it.
In this case, it is a closing expense, so when you go to see your loan estimate or closing disclosure, you will see a charge that says it is the mortgage insurance premiummortgage insurance premium, mortgage insurance premium just as there is a charge if you decide to finance there is also a loan on the other party, so one cancels with the other, but if you are going to have a slightly higher loan amount.
What is the purpose of the mortgage insurance premium?
In this situation, the insurance is covering the payment in the event that you do not pay your house, it covers a proportion for the debt, and this is how the bank determines that it is willing to accept the risk of financing the property for you, with a much lower down payment.
Then they demand that you pay for this insurance in order for them to cover their investment in you.vv
If you are able to remove the mortgage insurance, it will not be for the life of the loan, and you will need to switch to a standard loan.
If you make an FHA loan with less than 10% down, it is for the life of the loan; if you put more than 10% down, it is for a full 11 years, and you no longer have to pay that insurance starting in the twelfth year.
But, as I indicated to you, if we refer you to a traditional loan, with which you have a 20% profit on your house, you no longer have to pay that insurance, because the bank takes the risk, knowing that it has enough profit at the house if you don't pay.v
So, honestly, it is a very modest cost for what the investment of a property may be, and what you can gain on that investment will be far greater than what the bank is asking you to pay at the time.
So don't let this be one of the reasons you decide not to buy a house; in any case, buying a house is a very good option if you understand what insurance is, which is premium mortgage insurance.
I hope that this information will help you in understanding the statistics a little better, as well as the FHA loans, and that you will come back to our page to get more information on how to get your house loan.
We appreciate you joining us and hope you learned some useful information and methods.v
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