Are you interested in buying a home, but worried that you cannot afford a 20% down payment? There are still financing options available to homebuyers who make a down payment of less than 20%, but it is important to understand that you will be required to pay mortgage insurance in this case. If you are interested in buying a home in Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, and need help understanding costs associated with mortgage insurance premiums, the loan specialists at Foundation Mortgage can help. Read on to learn more about mortgage insurance premiums and your home financing options.
What Are Mortgage Insurance Premiums?
Mortgage premium insurance, or MIP, is an insurance cost charged to home owners that purchase a home with an FHA loan. FHA loans are non-conventional mortgages that are insured by the government, (through the Federal Housing Administration). Since FHA loans do not require a 20% down payment and allow borrowers with lower credit scores to qualify for a loan, there is a certain amount of risk involved for lenders. To offset that risk, FHA-backed lenders require a borrower to pay mortgage insurance premiums in the event that a borrower is unable to make loan payments and defaults on a loan. MIP will pay the lender part of the principal loan if the borrower is unable to make the monthly payments.
Unlike FHA loans, which require every borrower to have mortgage insurance, conventional loans, (loans that are not insured through the government), do not require mortgage insurance if the borrower pays a 20% down payment. Most FHA loans will require an upfront mortgage insurance premium payment that you pay during closing costs, as well as an annual premium payment. The annual premium amount will vary depending on your loan terms, and is dependent on the total amount and length of your loan, and the loan-to-value, (LTV). Borrowers will be required to make monthly MIP payments for the duration of the loan if a down payment of 10% or lower has been paid, however if you put down more than 10%, you will only be required to pay mortgage insurance premiums for eleven years.
Can You Remove Mortgage Insurance Premiums?
Mortgage insurance premiums can be cancelled in some circumstances, and it will all depend on the origination date of your loan. You will want to speak with your lender to see if you can eliminate MIP, and even if you are unable to cancel MIP, you can still consider refinancing your home to avoid mortgage insurance payments. If you are interested in learning more about mortgage insurance premiums in Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, contact Foundation Mortgage today.