Mortgage Insurance Just Got Cheaper

 In Qualifying for a Mortgage

Mortgage insurance just got cheaper!

Mortgage insurance is an insurance policy that must be purchased by homebuyers who have less than 20% down.  If the borrower goes into default, the lender cashes in the policy and the mortgage insurance company pays the lender for the loss they incur.  

Most borrowers hate mortgage insurance, but did you know that the cost of mortgage insurance has recently dropped dramatically for some borrowers?

Here’s what you need to know.

How Policies are Priced

Mortgage insurance companies used to price their policies based on the amount of the down payment and the borrower’s credit score.  

If a borrower only had 3% down, they paid the most.  5% down cost a little less, 10% down cost even less, 15% down was the cheapest, and if the borrower had 20% down, they didn’t have to purchase a mortgage insurance policy at all.

Borrowers with good credit also got cheaper mortgage insurance than borrowers with poor credit.

Recent Changes

With the recent changes in the way mortgage insurance policies are priced, the down payment amount no longer matters as much for people with good credit.  And if there are two borrowers, and both have good credit, the cost of the mortgage insurance is even less. Also, if the borrowers’ debt-to-income ratio is lower, the cost of the mortgage insurance is reduced.

The reason for these price reductions is because loans with two borrowers, both of whom have excellent credit, have an extremely small probability of going into default, regardless of the size of the down payment.  If their debt-to-income ratio is low, there is an even smaller chance that the loan will go into default.  

This is very good news for people with excellent credit.  They are no longer forced to pay high mortgage insurance premiums.

Have questions about mortgage insurance?  Need a pre-approval? Contact us today and get the expert help you deserve.

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