Need Mortgage Insurance On Your Home Loan with a Low Down Payment?

Reap the Benefits of Letting Your Lender Pay For Your Mortgage Insurance

Every penny counts when buying a home—especially when you’re a potential mortgage borrower looking for a home loan with a low down payment. Sure, every would-be homeowner would love to get a mortgage with as minimal of an initial investment as possible. But the truth is that you usually end up paying for it in the long run.

This is because getting approved for a home loan with a low down payment typically means you will end up paying more in terms of a monthly mortgage payment, especially when factoring in mortgage insurance. But what if there was a way to get that home loan with low down payment and get mortgage insurance, without breaking the bank each month?

Examining your mortgage insurance options could be the key to getting the house you’ve always wanted—within a budget that works for you.

How it works

Mortgage borrowers who are unable to come up with an adequate down payment (20% or more) are traditionally required by their lender to purchase some sort of mortgage insurance. This is a way for the lender to ensure their investment is protected in case you default on your loan payments. As a homeowner you have a few choices to make in terms of how you obtain this mortgage insurance. You can:

1. Pay for it yourself using something known as Borrower Paid Mortgage Insurance (BPMI). This is when you, as the homeowner, end up getting private mortgage insurance and are then expected to pay the cost of the insurance either upfront in total or through monthly premiums—along with your monthly mortgage payment. In essence, it is an added cost on top of your monthly home mortgage loan payments.

So let’s say you put $10,000 down and get approved for a mortgage of $190,000 at a rate of 4% over a 30-year period. Your monthly payments would equate to roughly $908 a month, according to this mortgage calculator. Your monthly private mortgage insurance costs, according to the same details of your mortgage, are estimated to come in at roughly $114, according to this BPMI calculator. This means your total monthly payment equals $1,022.

Or

2. Let your lender pay for it using something known as Lender Paid Mortgage Insurance (LPMI). With LPMI, your mortgage lender pays your mortgage insurance premium upfront in one big lump sum. This is called Lender Paid Single Premium and involves your lender passing on the insurance costs to you in the form of a higher interest rate applied to your mortgage terms.

Assuming the same scenario as above, let’s say your lender pays your mortgage insurance and thereby increases your mortgage rate by one-quarter of a percent. If you’ve put the 10% down and been approved for that $190,000 mortgage loan, only at a rate of 4.25% for the same 30-year period, your monthly mortgage payment is now at $934. This figure includes your mortgage insurance.

With LPMI, the impact on the interest rate is often so minuscule that you end up paying less in a total monthly mortgage payment then you would if you had purchased private mortgage insurance. This type of mortgage insurance option is heavily dependent upon your Loan to Value Ratio, and is typically only available for conventional mortgage loans, not government backed loans.

So as you can see, how your mortgage insurance is ultimately paid for, can be the key to making your monthly mortgage payments more manageable.

At Blue Water Mortgage, we understand that your home mortgage loan is all about your monthly payments. If you’re like many potential borrowers who are unable to come up with a large down payment and are thereby required to get mortgage insurance, it’s a good idea to examine the best scenarios to ensure that your monthly payments don’t balloon well past your comfort zone.

In addition to giving great advice on mortgage insurance, we offer a variety of products with low or no down payment for buyers working within a budget. Contact us to day to discuss how we can help you get the ideal terms on your monthly home mortgage loan.

Roger Odoardi

Roger is an owner and licensed Loan Officer at Blue Water Mortgage. He graduated from the University of New Hampshire’s Whittemore School of Business and has been a leader in the mortgage industry for over 20 years. Roger has personally originated over 2500 residential loans and is considered to be in the top 1% of NH Loan Officers by leading national lender United Wholesale Mortgage.