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Commonly Asked Legal Questions 

Real Estate Closing

What is mortgage insurance?

It is insurance, required by and benefitting the LENDER (not the BORROWER), in case the borrower gets behind making the mortgage payments. It will not protect the borrower from a lower credit score OR foreclosure, if the borrower gets behind making mortgage payments.

Why do I have to pay mortgage insurance?

Lenders require it to reduce their risks when loaning money. Certain types of loans require it, such as Federal Housing Authority (“FHA”), United States Department of Agriculture (“USDA”), and Veteran’s Administration (“VA”) loans, also lenders usually require it for conventional loans if the borrower makes a down payment of less than 20% of the purchase price of the home OR if the borrower has less than 20% equity in the home when refinancing.

Can I avoid paying mortgage insurance?

Probably, depending on the type of loan you obtain, the amount of money you put down to purchase a home, and the amount of equity you have in the home you are refinancing. Some lenders will propose alternative loan scenario to help you avoid paying mortgage insurance, however, it is important to request the lender to run all the numbers related to the alternative loan scenario so you can compare bottom lines. Further, it is important to know the mortgage insurance payment can be stopped based on the terms of the loan after you cross the 80/20% threshold.

How can I avoid paying mortgage insurance or pay the least amount possible?
  1. Seek a loan that doesn’t require mortgage insurance;
  2. Put down more than 20 % of the purchase price of the home OR accumulate more than 20% equity in the home;
  3. Be aware of the terms of mortgage insurance, so you know whether the required monthly payment drops on its own on a certain date OR whether you are required to refinance the loan to drop the mortgage insurance payment.
How can I get more information about mortgage insurance?

Click the following link to the Consumer Financial Protection Bureau (“CFPB”), a governmental agency educating and protecting consumers engaged in financial transactions in which they may find themselves needing protection from unfair, deceptive or abusive practices. The CFPB educates consumers regarding financial transactions and provides them resources to get help when they need it.  



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