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If you’re like most people, your greatest concern when buying a home isn’t the monthly mortgage payment. It’s having enough saved for a down payment.
Many homebuyers assume you need to have a down payment equal to 20% of the home’s value. That’s not the case. Yes, there are benefits to putting down that large amount upfront, but if you can’t afford that, you may still qualify for a home mortgage thanks to something called mortgage insurance.
When you put 20% down on a home, you don’t have to borrow as much from a lender. That sizeable investment gives a lender more confidence that you won’t default on the loan.
When you put less money down, the lender takes on more risk. To offset that risk, lenders may require mortgage insurance, which protects them from loss in case you can’t keep up with your payments.
Annual mortgage insurance premiums can range from about 0.2% to more than 1% of the total loan amount. The cost will vary based on several factors, including:
You’ll typically pay the annual premium in equal installments, which are collected with your monthly mortgage payment.
Yes, but lenders may not offer all options and some types may be specific to a certain loan programs. Two common types of mortgage insurance are Private Mortgage Insurance (PMI) and Mortgage Insurance Premium (MIP).
There are two PMI options:
If you take out a Federal Housing Administration (FHA) loan, you’ll pay an MIP, meaning your premiums will go to the FHA rather than a private insurer. Typically with an FHA loan, you’ll pay an upfront MIP premium at closing, as well as monthly MIP payments for the life of the loan.
Saving for a 20% down payment can be difficult. While mortgage insurance is an extra monthly cost, it can help you move into your dream home sooner than you expected. Take this into consideration when you’re saving for your home and deciding on your price range.
Buying a home is a life-changing moment. Our dedicated colleagues can help you reach your potential by finding the right mortgage option that fits your needs. To learn more about mortgage insurance, as well as low down payment mortgage options, talk with a Citizens Bank Loan Officer.
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