How is Mortgage Insurance Calculated for a Conventional Home Loan: First Time Home Buyer
Calculating mortgage insurances depends on whether you are choosing a conventional, FHA, VA, or Rural Housing (USDA) loan. A conventional loan says that if you put 20% down, you avoid mortgage insurance completely. 80.01% and above, you’ll have to pay mortgage insurance. For every 5% increment increase, your mortgage insurance amount increase. So, the less money you put down as your down payment, increases the risk taken on by the lender.
You can pay your mortgage insurance on a monthly basis until you reach approximately 78% loan to value. I know I mentioned 80% before put that is only when you first purchase the home. If you wait until later, you must have a 78% loan to value and then your mortgage insurance will drop off.
Mortgage insurance is determined by that 78% loan-to-value and also your credit score. These are the two factors that determine how much you pay in mortgage insurance. If you choose to do a lump sum mortgage insurance payment, which I highly recommend, you can actually pay a lump sum fee rather than monthly, allowing you to not have it in your monthly house payment. Paying up front works really well.
Another option is doing a lender paid which means your interest rate is raised. So, you would have a higher interest rate with not mortgage insurance.
These are some simple calculations but everyone’s situation is different. Give me a call today and let’s discuss what will work best for your needs.
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DISCLAIMER: Many factors impact mortgage insurance rates, such as loan type, down payment, % of loan to value, credit score, occupancy and type of underwriting (e.g. automatic or manual).