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What is Mortgage Insurance?

Mortgage insurance (also called mortgage guarantee) is an insurance policy that protects lenders/investors in the event of a default on a mortgage loan. Typically, if you put less than 20% down on a home, you will have to purchase mortgage insurance. Mortgage insurance has become much more common because in recent years, home owners are putting much less down, if any at all on a home. Mortgage insurance can be either public or private. There are two types of private mortgage insurance.

Borrower-paid private mortgage insurance is paid for by you the borrower. Lender-paid mortgage insurance is paid for by the lender, and is initially included in the interest rate.

It is in your best interest purchasing mortgage insurance when you do not have 20% or more to put down on the home, often works to your advantage to get approved for the loan. You may be paying for the mortgage insurance for at least the first year of few years, until equity is gained in the home.

If you are purchasing a home in New Mexico, you may be eligible for a government insured mortgage.

You may also want to look into single pay mortgage insurance, which will lower the cost of your month mortgage payment. By doing this you will be able to regain money back within a couple of years. Single pay mortgage insurance gives you more borrowing power, and can reduce the cost at closing.

Mortgage insurance terminated when the home reaches 78% of it's value. Mortgage companies are required to terminate you mortgage insurance by law when this happens. The only loans that this does not apply to is FHA loans, however, they are still mandated by different termination guidelines. To make sure that your mortgage company is complying with these standards, you may consider hiring a real estate appraiser, if you are unable to calculate the value of your home yourself.

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