For many St. Louis home buyers, the biggest obstacle to owning a home is the down payment. Understanding what mortgage insurance is can be of great benefit!
You may have heard the term “mortgage insurance” but what is it? Do you need it and how can you get it?
What is Mortgage Insurance?
Simply put, mortgage insurance is an insurance policy that protects the lender against losses should the borrower, or homeowner, default on their mortgage payments.
It is typical for lenders to require mortgage insurance for loans that have a down payment of less than 20%. This gives them a financial guarantee should the home loan go into foreclosure. With mortgage insurance, many lenders will not require a 20% down payment.
However, most mortgage insurance companies have very strict guidelines for a lender to follow making it difficult for people with a less than stellar credit score to secure funding.
A St. Louis FHA Loan
The FHA, or the Federal Housing Administration is not a lending institution. Rather, they provide insurance to lenders who are willing to grant mortgages to high risk buyers. So, a St. Louis home buyer that has a below average credit score has a real opportunity of owning their own home!
An FHA loan promotes home ownership by overlooking some of the flaws a potential buyer may have when they approve a mortgage. What this does is gives the lender the peace of mind to move ahead with the application because they have the reassurance that it is backed by the FHA.
The buyer will be required to make an initial payment toward the mortgage insurance, which is about 1.75% of the loan amount. In addition to this, there will be a monthly premium, or MIP, on the mortgage statement each month. The amount of the mortgage insurance is directly related to how much of a down payment a person is able to make towards the purchase of their new home.
In the event that a person is not able to continue making their loan payments, the funds that have been collected through the insurance payments will be used by the FHA. A lender is more willing to work with a buyer that has this kind of security behind them, even if their are flaws in their credit history.
Ask a Better Rate Mortgage Expert!
The FHA offers a variety of options for St. Louis home buyers, the most popular being the FHA 203B mortgage and FHA 203K mortgage. Ask your Better Rate Mortgage expert for more details about which loan will work best for your circumstances. We are committed to making sure that you are able to receive the funding you need, whether for a home in mint condition or one that needs extensive renovations.
Call us today at (314) 362-9979 or fill out our online contact form. We are proud to be able to offer a full line of FHA loans to St. Louis home buyers.