Don't get Down about Payments

Posted by  on Apr 16, 2009
There are several borrows that forget that lenders require a down payment of at least twenty percent of the purchase price. This can be frustrating when people are unaware of the payments that are hidden and required. These elusive costs are never shared to the degree in which they are clarified. It can become too confusing and frustrating to do so. Private mortgage insurance makes it possible for a homebuyer to obtain a mortgage with a down payment as low as five percent.

Remember that private mortgage insurance may be also required when buying a second home or refinancing an existing mortgage with cash out. Mortgage insurance protects the mortgage lender against financial loss if a borrower defaults. Low down payment mortgages are becoming more and more popular. Mortgage insurance allows borrowers to purchase a more expensive home than they might otherwise be able to afford.

When you have a lower down payment, you retain more for home furnishings, or buying a car or other investments. The good faith estimate of closing costs provides the estimated premium and monthly cost for the private mortgage insurance coverage. It may be possible to cancel private mortgage insurance at some point, such as when your loan balance is reduced to a certain amount.

In general, a portion of the mortgage insurance premium is paid up front at closing, and the rest is paid as part of the monthly mortgage payment. Under an annual plan, a borrower pays the first-year premium at closing. Monthly plan allows homebuyers to pay 1 or 2 month's mortgage insurance premium at closing. With single premium plan a borrower need to pay a one-time single premium. Some mortgage insurance plans allows to add the amount of the mortgage insurance premium to the loan amount. In that case borrowers make no mortgage insurance payment at closing and the first insurance payment is made with the first mortgage principal and interest payment.

The law in certain states requires that mortgage insurance be cancelled under some circumstances. However, because of the wide variation in lender, investor and state requirements, it is necessary to find out the specific requirements for cancellation before you commit to paying for mortgage insurance. Mortgage insurance should not be confused with mortgage life insurance, which is designed to pay off a mortgage in the event of the borrower's death.


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