How to avoid paying monthly mortgage insurance if you have less than 20% down-payment on your home loan. It really is possible! 503.698.5801 www.GoNorthwestLoans.com
You’ve decided to buy a brand new house, so you call me and ask, “What do I
need to do to get started?” One of the first questions I’ll ask you, is “how much you
plan to put down on this home purchase?”. If it’s anything less than 20%, we may
have to start talking about mortgage insurance.
Oh, but wait a second! You don’t want to pay mortgage insurance, right?
You’ve heard about these loan programs, or saw online where you didn’t have to
pay it … however, I’m here to tell you that if you are going to put less than 20%
down on virtually ANY loan program out there, you will have to pay mortgage
insurance or some variation thereof on your home loan.
Now, let me explain what mortgage insurance really is — and trust me, it’s not
there to pay off your mortgage in the event that something happens to you.
For instance: if you default on your mortgage and don’t make your house payments,
the bank will go to the mortgage insurance company and say they took a loss on
your loan. The insurance company will then cut the bank a check for anything
above 80% loan-to-value that you still owed on your loan balance. Mortgage
insurance is there to protect the lender — it’s basically a policy protecting the
bank for the risk they took on you putting forward less of a down payment.
Ok, so how does mortgage insurance factor in when obtaining your loan? If you
happen to have military background and are applying for a VA loan, you technically
don’t have to pay mortgage insurance monthly. However, they do charge a big
funding fee, which can be up to 2% or even 3% of the loan amount, and this is
added to your mortgage loan balance. You are still paying for it; it’s just financed
into your payment over the next 30 years.
This is how the major home loan programs treat mortgage-insurance:
• FHA does a combination of charging you an upfront fee and then a large
amount in your monthly payment. So you end up paying for it on both
sides of the deal, and the monthly portion will be there for the life of the
• USDA loans are very similar. They charge a larger amount upfront, added to
your balance, and a smaller amount monthly.
• Conventional — this is the most common type of home loan — and the only
kind that gives you various options on how to pay mortgage insurance. The
traditional way is paying it monthly, but there are methods to eliminate
Take a look at these examples:
1. Let’s say you are buying a house for $250K. You have excellent credit,
good debt ratios, and you’re putting 5% down. You would be looking at a
ballpark figure of $100 or $110 for monthly payments (no upfront
2. You could do a “split premium”, where there’s an amount up-front,
and a less on the monthly payment side.
3. However, if you don’t want to pay it monthly at all — because remember, you
called me and said you don’t want that extra payment! — then you have the option to
do a lump sum, also known as a “single premium”.
This one-time payment at closing wipes the mortgage insurance out
completely, meaning nothing more to pay monthly.
4. One of the most popular ways to get rid of paying monthly mortgage
insurance is financing it. This would mean as long as we stay within
the loan-to-value ratios, we can tack that mortgage insurance
single-premium onto your balance. So instead of paying $110 a month,
it may only raise your payment $15 or $20 a month — and again, you’d
be done with it.
So it’s not necessarily a bad thing having to carry mortgage insurance!
There are a lot of different options available…we can even work on helping you get the
seller to pay for it. We will find the right plan for you, so you can still buy or
refinance your home, without needing a 20% down-payment, or equity in your
Give me a call at 503.698.5801 and let’s go over the details of your next home loan.
I’ll personalize your specific numbers and work with you to avoid that large monthly