The high percentage of people wanting to own homes are experiencing dilemma as to where they can get the money to buy a house, if they have saved, the money is not enough, if they make a loan, can they pay it on time? Nowadays, many real estate developers find a profitable business in home building because it is now difficult for homeless people to pay the rent and in the long run, they still do not have a home. Many developers build homes and sell them on installment. Banks also expanded to home loans. These banks and other financial institutions finance home acquisition and they require their mortgagors to have insurance for their properties mortgaged. Mortgage insurance is required for loans with down payment of less than 20% of the purchase price. It lowers the risk to the lender for making a loan to you.
What is Mortgage Insurance?
What is mortgage insurance? It is an insurance policy that compensates the financing entity if they incur losses due to non-payment of the loan. The nature of the insurance can be public or private.For private insurance, you pay for the insurance to a private insurance company. If you want to pay the insurance to the financing institution which is owned by the government, the insurance is merged to your amortization but slightly higher. If you have decided to apply for a loan for house construction or seek financing for a house and lot ready for occupancy, you must learn how mortgage insurance works.
Benefit of Mortgage Insurance
Generally, a mortgage insurance first and foremost benefits the lender more than the borrower but there are also some indirect benefits that you can get out of a mortgage insurance (MI). If you apply for a loan and you cannot provide a down payment of more than 20% of the total cost of the loan, for the bank or financing institution to approve the loan, they will require you to secure mortgage insurance so that your chance of getting the loan approved is high. Do not despair and think that MI is more of an expense on your part. Here are some benefits for you as the mortgagor and insurance payer:
• Buying a home sooner – this means lesser time needed to save for a down payment and cutting off expenses if you are renting house.
• Expanded cash-flow options – you may use the money for down payment to purchase other things.
• Approvals made faster – approvals for loans with MI generally are approved sooner than non-MI.
• It can improve your cash flow – you may put lower down payment and keep cash for other uses (investing, paying off debt, or making home improvements or for emergencies).
• Increased buying power – you can buy some basic needs for your family because you have extra money. Your buying power is augmented and you can even save some for the future.
• Receiving a refund – some MI options allow for a refund of premiums upon cancellation of the mortgage.
• Faster approvals – loans with MI typically are approved sooner than non-M.
End result of getting a mortgage insurance
You will notice that you have slightly higher amortization because of the insurance, but, it can be covered up with the benefits of having a house of your own. This MI hastens the loan approval because if you have MI, the lender is somewhat assured of loan payment. On the part of the mortgagor, you save up on rentals because you do not have to wait for years till you accumulate the money to initially purchase a house. You can request for insurance cancellation after your loan is already 75% paid.
With this scheme, you are also assured that when misfortune comes, you can really pay your loan through the insurance and your family is safe and comfortable in your own house. You do not damage your credit integrity and at the same time, you house remains in your possession. You will never experience moving out of the house and letting your entire family sleep in the streets because your loan repayment is handled by the insurance company if you fail to settle your obligations.
Acquiring and settling in a house, though acquired through a loan, you can still have the peace of mind that comes from the security that your house loan will be paid in due time and that the ownership papers will be released to you now free of encumbrances. This is the advantage of mortgage insurance. So, what are you waiting for? Search for the house of your dreams, you can have it even if your savings is not sufficient, look for a financing institution that can trust you and negotiate. After all, a house is not a home if you keep on torturing yourself that you might not be able to pay it.