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If your corporate relocation involved the purchase of a new home, there’s a good chance that you talked to your banker about mortgage insurance. Questions concerning the topic are so common that we asked Anna Zych, a relocation President’s Club Banker at Quicken Loans, to dissect the topic for us in this Q&A-style interview.
Q: What is mortgage insurance?
Zych: Mortgage insurance is a type of insurance that’s payable to a lender or broker that protects them in case the mortgagee is unable to pay their mortgage and defaults on the home.
Q: How does mortgage insurance work?
Zych: If a client is unable to or does not want to put 20% down on a new home, mortgage insurance insures that the client can get a loan with a lower down payment, but the client will still have to pay mortgage insurance in case they are to default on their home. Mortgage insurance can be either public or private depending on the lender.
Q: How much does mortgage insurance cost?
Zych: The cost of mortgage insurance varies throughout the industry.
Q: When is mortgage insurance required and when is it not?
Zych: Mortgage insurance is required on all conventional loans where there is less than a 20% down payment made. If a client puts a 20% down payment or more on a home, they will not be required to have mortgage insurance on a conventional loan backed by Fannie Mae and Freddie Mac. A client will always have mortgage insurance on an FHA loan option, no matter the down payment size.
Q: What are the types of mortgage insurance?
Zych: Private mortgage insurance, or PMI, is associated with conventional loan options, while mortgage insurance premium, or MIP, is associated with FHA loan options.
Q: Can you pay mortgage insurance off in one lump sum?
Zych: Mortgage insurance on a conventional loan can be canceled once the client reaches 20% equity in the home. They can request it be removed by their lender. Otherwise, mortgage insurance falls off automatically when the client has 22% equity in the home. Mortgage insurance on an FHA loan will most likely be on there for the life of the loan, unless you make a down payment at the time of purchase of 10% or more. If you do put a 10% or more down payment on an FHA loan, your MIP comes off after 11 years.
Q: How can mortgage insurance benefit relocation mortgage clients?
Zych: Mortgage insurance can benefit relocation clients because they do not always have to use their entire equity from the sale of their current home on the new home. It also allows them to purchase a new home with less down and not make contingent offers based on the sale of their current home, which gives them more flexibility.
If you have any questions or would like more information on how to partner with the Quicken Loans Relocation team, call (888) 859-1231.
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