The term Mortgage insurance could be referenced throughout the entire mortgage process and could have different meanings. Generally, the term refers to a type of coverage that helps the lender protect their interest in your home in the event that you can't make your mortgage payments.
We'll take a look at the five different usages of the term mortgage insurance and what they mean.
1. Private Mortgage Insurance (PMI)
Private mortgage insurance is insurance that is provided by a private company, rather than the government. This type of insurance is typically required if you are putting less than 20% down on your home. When you get private mortgage insurance, it is usually required that you continue to make payments until you have over 20% equity in your home. So you only pay private mortgage insurance for a specific period of time. Your PMI payments are set up and collected with your monthly mortgage payments to protect your lender in case you default in your payments.
2. Government Mortgage Insurance (FHA MIP)
Government mortgage insurance is also known as "FHA mortgage insurance premiums". If you are getting a loan backed by the Federal Housing Administration (FHA), then you will be required to get government mortgage insurance. As with private mortgage insurance, this type of insurance is paid monthly in addition to your mortgage payment, and your downpayment percentage will determine how long mortgage insurance premiums will be required. Alternatively, you may be able to refinance into a conventional loan with no mortgage insurance once you build 20% equity in your home.
3. Mortgage Insurance for Jumbo Mortgages
Jumbo mortgages may also require mortgage insurance as well if putting less than 20% downpayment. A mortgage is considered to be a jumbo loan if it is greater than $726,200 in 2023 (up from $647,200 in 2022) depending on where you live. Most Jumbo investors will require a 20% downpayment, but if you find one that requires less than 20% for downpayment, then you will need to get mortgage insurance from their approved list of providers. This mortgage insurance works similarly to private mortgage insurance but could be paid to a private mortgage insurance company or an investor.
4. Condo Insurance (HO6 policy)
Condominium units require a specific type of insurance protection that a homeowners policy can’t provide. Condo insurance is paid by the homeowner to protect their unit and personal belongings. It is important to note that each condo association may have different requirements for how frequently this type of insurance needs to be renewed, and it will also vary depending on the mortgage lender.
5. Homeowner's Policy
Homeowner's insurance provides coverage for theft, fire and wind damage, as well as other things that might happen to the building. Homeowner's insurance is required by most lenders because it protects them from financial liability should a disaster damage your home or personal belongings. Coverage includes dwelling coverage (structure of the home including walls, floors, windows, etc) and personal property coverage (personal belongings including clothes, furniture, electronics, etc). Although not required by law, if you are getting a mortgage, the lender will likely require a homeowners policy. But even if you don’t have a mortgage, home insurance is almost always considered a wise purchase.
First Savings Mortgage is here to help you through the process of securing a mortgage and finding the right type of insurance for your needs. Contact one of our expert loan officers today to learn more about your options and if mortgage insurance will be required.