Different types of Mortgage Insurance

There are different types of mortgage insurance. Private Mortgage Insurance (PMI) is insurance that protects the lender - the mortgage company. Many home buyers can not afford to make the traditional 20% down payment on a house. They can make some payment, but have not and can not get the money needed to make a 20% deposit. Less than a 20% down payment, the lender is taking a greater risk. PMI is the guarantee that they will not lose money. The buyer pays the monthly premiums for SMEs.

The Federal Housing Administration (FHA) and Veterans Administration (VA) are both government agencies that guarantee mortgages. Borrowers must meet certain requirements to qualify for an FHA loan or VA guaranteed.

Basically, the mortgage insurance works. Let's say you want to buy a house that sells for $ 264,000 - which was the average price of a house in the U.S. in October 2007. A 20% deposit would be $ 52,000. Not many people can come up with that much cash all at once. If you can make a down payment of say $ 15,000, an insurance private mortgage insurance will be written to ensure the balance of the usual down payment, and prizes will be added to the monthly payment.

Many people do not realize that the SME policy can be canceled after the mortgage has been reduced and / or the house has appreciated.

In the past, buyers were not informed that the mortgage insurance can be canceled when the loan-to-value ratio is decreased to a certain point - usually 78%. Law on the Protection of the landlord of 1998 made it mandatory for companies to inform buyers each year on the terms and condition of their mortgage insurance and give them the opportunity to cancel, it was no longer required by law.