How to Handle Mortgage Insurance as a Home Buyer

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Have you heard of mortgage insurance? Do you know why it exists and when it comes into play?

If you're buying a house with an FHA loan, you use it all the time. FHA loans always require mortgage insurance because there is always some unfavorable factor that comes with these loans. That factor could be a small down payment or below-average credit from the buyer, for example. Because of this elevated risk to the lender, insurance is required.

Conventional loans have a little more flexibility. If you don't put 20% down, you'll have mortgage insurance. The kind of mortgage insurance most people think of is paid monthly, which comes in the form of a premium you pay until the balance of your loan is below 80% of the home’s purchase price. You can also pay mortgage insurance in a lump sum, where the whole cost is paid at once, and you never have to pay it again.

Another way to pay mortgage insurance is with lender-paid mortgage insurance. You'll still have a lump sum, but instead of paying it all at once, the lender will give you a slightly higher interest rate on your loan and use the credit to pay the mortgage insurance.

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Mortgage insurance comes into play when your down payment is less than 20%.

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Another option is split-premium mortgage insurance, which allows you to have a lump sum and some monthly payments at a reduced amount. The reason for choosing one method over the other depends on many things, like income.

Mortgage insurance is not tax-deductible over certain income levels, whereas mortgage interest is. Someone with higher income would probably go with lender-paid mortgage insurance because of the difference in tax treatment between mortgage insurance and mortgage interest. If you're keeping the property long-term, monthly mortgage insurance is typically better because you pay more in the beginning, but then it goes away.

As you can see, there are plenty of ways to deal with mortgage insurance. If you have more questions about this topic, please feel free to reach out to me or my team. We'd be happy to answer any questions you have.

Why Is EFO Important to Us?

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This video blog is typically dedicated to all things mortgage and real estate. While I can and still will talk about those topics all day long, today I wanted to talk about something near and dear to my heart.

About five years ago, my church started going down to Haiti on short-term mission trips for disaster relief after the horrible earthquake left the country in ruins. We helped out a school/orphanage with rebuilding and fixing their water source. We went on a total of five mission trips, two of which I attended. Within those five trips, we were able to get the place up and in running condition, which made a huge impact on the daily lives of all the students.

Although we helped rebuild, we couldn’t stop thinking about what would happen to those children at the orphanage once they were done with school and became adults. Unemployment is very high in Haiti, and there is little opportunity for them. This gave one member of our congregation an idea, and they started a separate non-profit foundation called EFO, or Education For Orphans.

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We’ve seen students thrive in this program.

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The idea of this organization was to raise funds to give select students scholarships that granted the opportunity to advance into secondary school. When these students graduate, they can then come back and share those skills with others and inspire them to pursue education as well.

Over the last two to three years, we’ve seen students advance and have a huge impact on their lives, as well as the day-to-day lives of those in the orphanage. Check out some video of our trips above, check out the website here, and consider helping out. Whether you donate time, money, or resources, we appreciate your consideration. I can say that it’s definitely been a very rewarding experience for me to be involved with an organization like this.

If you have any questions, don't hesitate to give me a call. I would be happy to answer them.

Is the Lowest Interest Rate Always the Best Option?

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Is lowest always best? All things being equal, of course paying the lowest interest rate would be the best option, but there all kinds of scenarios where this simply isn’t true.

We don’t want to create unnecessary fear, but you only have to go online and do a little digging to see that the experience people have when buying a home and getting a mortgage is far from uniform. There are all kinds of stories about missed deadlines and false promises. You might have terrific credit, or be principled enough to say that you’ll walk away if the numbers change, but as you’re getting ready to move your family into a home and you’ve already invested as much as $1,000 for things like appraisals and inspections, sometimes it just doesn’t happen.

The first and most important thing to remember is what you see is not always what you get. Whether that’s missing contract deadlines, missing closing dates, or the mortgage lender just misquoting certain things, there are some mistakes you just can’t be protected from. The other important thing to consider (which is often overlooked) is that many mortgage people act in a very transactional manner. Their goal is to get you to do business with them. They may present some options or numbers that might not be in your best interest, but you’re most likely to accept anyway because you’re assuming a low interest rate is great no matter what.

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What you see is not always what you get.

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There are all kinds of scenarios, though, where a different loan product or term might be better. I’ve had situations where I’ve actually gone with a higher interest rate but much lower closing costs because that kind of arrangement might be better for a person who might not be keeping a home for a long time. It’s a difficult conversation to have with a borrower to convince them to accept a higher rate in exchange for lower closing costs, but we can always run through those numbers to explain why it would make sense to them in the long run.

If you’re looking for a mortgage lender with competitive interest rates, individuals that will take the time to understand your particular situation and make appropriate recommendations, and a local team that has a track record of delivering on their promises and their timelines, reach out to myself or someone on our team at the number listed below and we’d be happy to help you out.