What is Mortgage Insurance?

What is Mortgage Insurance?
Mortgage insurance is usually required by mortgage companies on all types of loans. This insurance
covers the mortgage company in the case of a buyer defaulting on the loan.
On a conventional loan, mortgage insurance is required until 20% equity in the value of the home is
reached. When the loan-to value ration reaches 80%, the insurance is automatically removed from the
conventional loan.

FHA loans are different, buyers who finance their home with an FHA loan and put 10% down on the
purchase are only required to pay mortgage insurance for 11 years. However, if the borrower pays less
than 10% cash at close, they will be required to pay mortgage insurance for the life of the loan. The
borrower may have the option to refinance into a conventional loan and if the loan-to-value ratio is 80%
or more, the mortgage insurance will not be required.

Recently, FHA has changed its mortgage insurance rates. Now if the borrower has a loan amount of
$726,200 or less the rate is 0.55%, which has been reduced from 0.85%.
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