For many would-be homeowners, coming up with a down payment that’s 20 percent of the home loan they want just isn’t possible. And most lenders view a down payment below 20 percent as a sign that the prospective home buyer is a high risk. However, rather than not giving the buyer a loan, a lender may offer an alternative: mortgage insurance.
Mortgage Insurance Basics
Travis Saling, a loan officer with Team Home Loans in California, likens mortgage insurance to auto insurance. With auto insurance, everyone pays into a pool each month. If a customer gets into a wreck, the insurance company uses the pooled funds to cover the cost of repairs. With mortgage insurance, you’ll also pay into a pool to help the lender cover losses and costs if a homeowner defaults on their loan. Mortgage insurance also helps the lender offset risks and allows them to make loans to buyers with smaller…
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