So, what exactly is mortgage insurance? This insurance acts as a safety net for the lender in case you default on your mortgage payments. For conventional mortgages (not FHA,VA or USDA) you will be required to pay mortgage insurance until you have 20% equity in your home. FHA,VA or USDA will require MI throughout the life of the loan.
You might be wondering how this insurance benefits me? Well, mortgage insurance allows you to achieve homeownership with a lower down payment, making it easier to get into the market sooner. This, in turn, gets you on the equity-building train faster. As you continue to pay down your mortgage and your home appreciates in value, you can reach the magical 20% equity mark sooner than you thought. Once you reach this threshold, you can request to cancel your mortgage insurance, saving you a significant amount of money in the future.
The main drivers of MI are the LTV (loan to value ratio (i.e what percent you put down) and DTI (debt to income ratio). The more you put down and less debt you have the lower the premium. By discussing mortgage insurance options with a trusted professional, you can ensure you're maximizing long-term savings. Feel free to reach out with questions.