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Rates as
Low as 3.9% |
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Lowest
closing cost Guaranteed |
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 60
Seconds
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Low Down Payments
Down
Payment Loans and Gifts
Down
Payment Grant
Qualifying
For Low Down Payments
Down
Payment Assistance
State
Housing Authorities |
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Low Down Payments
Simply put, mortgage insurance protects
the mortgage company
against financial loss if a homeowner
stops making mortgage payments. Mortgage companies
usually require insurance on low
down payment loans for protection
in the event that the homeowner
fails to make his or her payments.
When a homeowner fails to make
the mortgage payments,
a default occurs and the home goes
into foreclosure. Both the homeowner
and the mortgage insurer
lose in a foreclosure. The homeowner
loses the house and all of the
money put into it. The mortgage insurer
will then have to pay the mortgage company's
claim on the defaulted loan.
For this reason, it
is crucial that the
family buying the home
can really afford it,
not only at the time
it is purchased, but
throughout the time
period of the loan.
Although the cost of
the mortgage insurance
is paid by the home
buyer, or borrower,
the mortgage insurer
works directly with
the mortgage company.
Mortgage insurance
is available to commercial
banks, savings & loans
and mortgage bankers,
all of whom offer mortgage
loans to home buyers.
Remember that mortgage insurance
is not the same as
credit life insurance,
also called mortgage life
insurance. This type
of policy repays an
outstanding mortgage
balance upon the death
of the person who took
out the insurance policy.
The Secondary
Market
The mortgage company's
decision to use mortgage insurance
is driven by the requirements
of investors in the mortgage market.
Because of the losses
that could occur, major
investors require mortgage
insurance on all loans
made with low down
payments.
The three primary investors
in home loans are Federal
National Mortgage Association
(Fannie Mae), Federal
Home Loan Mortgage Corporation
(Freddie Mac) and Government
National Mortgage Association
(Ginnie Mae). By purchasing
and selling residential mortgages,
Fannie Mae and Freddie
Mac help keep money
available for homes
across the country.
Unlike Fannie Mae and
Freddie Mac, Ginnie
Mae does not actually
buy mortgages.
It adds the guarantee
of the full faith and
credit of the U.S.
Government to mortgage
securities issued by mortgage companies.
The Two Choices:
Government Insurance
and Private Insurance
Now that we have explained
how mortgage insurance
works and why it is
necessary, let's look
at the basic kinds
of mortgage insurance.
Low down payment mortgages can
be insured in two ways
-- through the government
or through the private
sector. Mortgages backed
by the government are
insured by the Federal
Housing Administration
(FHA), the Department
of Veterans Affairs
(VA) or the Farmers
Home Administration
(FmHA).
Although anyone can
apply for FHA insurance,
the other two government mortgage guarantee
programs are much more
targeted. The VA program
is limited to qualified,
eligible veterans and
reservists. This program
is very specialized,
so contact your mortgage professional
for the details. The
FmHA insures loans
for the construction
and purchase of homes
in rural communities.
Obtaining conventional
financing is the alternative
to obtaining a home
loan backed by the
government. Conventional mortgages are
all home loans not
guaranteed by the government,
including those guaranteed
by private mortgage
insurers.
Although government
and private insurance
are based on the same
concept of allowing
families to get into
homes with less cash
down, there are many
differences between
the two. Often, your
mortgage professional
will play an important
role in suggesting
and deciding which
insurance is selected.
Home buyers must make
a down payment of at
least 5% of a home's
value to be considered
for private mortgage
insurance. However,
under some special
programs, the down
payment requirement
allows the buyer to
use a gift or grant
to cover 2% of the
5% down payment required
by private mortgage insurers.
The gift or grant may
come from a friend,
relative, community
group or other organization.
Private mortgage insurance
is available on a wide
variety of home loans
and there is no pre-set
limit on the loan amount.
Although differences
such as these may affect
whether the mortgage company
prefers to work with
government or conventional
mortgages, your mortgage professional
will discuss which
one would be better
for your situation.
With the wide variety
of loans available,
home buyers have the
freedom to choose the
type of loan that best
suits their needs.
Early on in the home
buying process, it
is a good idea to meet
with several companies
to compare the types
of mortgages they
offer and shop for
the best price and
terms. Best of all,
working with a mortgage insurer
can be very easy, whether
your loan is insured
by the FHA or a private mortgage insurance
company, because your mortgage professional
handles all of the
arrangements.
By making lending money
to home buyers safer,
mortgage insurance
helps more families
get into homes of their
own. |
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