Budgeting and planning for a new home can be harrowing tasks.
One of the most confusing of these especially for those buying their first home is mortgage insurance.
What Is Mortgage Insurance and How Does It Work?
Mortgage insurance exists to repay the bank in the event that you default on your loan.
That being the case, you might ask, Why would anyone opt for it?
There are two main types: private mortgage insurance (PMI) and mortgage insurance premiums (MIP).
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When you purchase a home, its rare that youd do so entirely with cash.
Instead, you take out a mortgage for the purchase price, minus your down payment.
In fact, PMI can have a drastic effect on your monthly payment.
Thats great, because you wont be on the hook for PMI.
The good news: you wont be stuck with it forever.
FHA mortgages are covered not by private mortgage insurers but by the governments Federal Housing Administration.
Besides the nature of the insurer, there are two major differences between MIP and PMI.
What does all that mean in real terms?
What Are the Benefits of Mortgage Insurance?
With all that said, it might seem as though there is no upside to having mortgage insurance.
There are, however, a few benefits to getting a loan backed by an insurance policy.
That means you might get your mortgage approved faster.
In truth, this is a mixed blessing.
How Can I Get Rid of PMI or MIP?
Getting Rid of PMI
Luckily, in most cases, PMI comes with a built-in expiration.
That could save you several months worth of mortgage insurance payments.
Remember how I said most cases?
Always read the fine print in your mortgage documents.
Getting Rid of MIP
The biggest drawback to FHA loans is that MIP never expires.
That doesnt mean you have no options, though.
But dont be dissuaded!
Probably not as good as youd like.
It always seems like an uphill battle to build (and keep) a decent amount in savings.
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