Getting a mortgage loan approved can be difficult if the borrower can’t pay at least 20% down payment for the house whether individual or family mortgages – it’s a fairly large amount that many simply cannot afford. One way to bypass this requirement is to agree to pay for mortgage insurance for a period of time. Such a deal minimizes the risk for lenders in the event that borrowers end up defaulting on payments. This safety blanket makes them more amenable to approving loans despite the low equity.
While mortgage insurance presents an added cost to the borrowers, it does help them attain the loan quickly. For some, this is more desirable than waiting until there are available funds to cover the hefty down payment of no-insurance loans. Borrowers can take comfort in a piece of legislation that allows them to write off the mortgage insurance of their tax returns. There are limitations based on income so it is best to read up on the law to determine eligibility.
As stated, this mortgage insurance need only be paid for a set period of time and not until the completion of payment. The exact timeframe will vary depending on what has been agreed upon. The minimum is one year, though this may be lifted sooner if the remaining balance has been reduced down to less than 80% of the purchase price. Borrowers may have to make a formal request by sending a letter to the lender if stipulated in the contract. There could also be a certain level that will automatically trigger the termination of the insurance. Another option is to have the property appraised as an increase in value can provide 20% of equity. Loans guaranteed by the FHA, however, have more stringent requirements. Mortgage insurance payments on these have to be paid for a minimum of 5 years. Termination is contingent on reducing the balance to 80% of the original price. They do not take the newer appraised value into consideration.