George Mason Mortgage has an excellent overview of the three main ways to pay for mortgage insurance. But before we go there, what is mortgage insurance?
If your down payment is less than 20% of the purchase price, your lender may require that you pay for mortgage insurance to cover their greater risk because of your smaller down payment.
Two quick points...
- Generally, the smaller the down payment, the higher the cost of your mortgage insurance.
- Generally, the lower your credit scores, the higher the cost of your mortgage insurance.
And now, the three main ways to pay for this mortgage insurance...
- Pay Monthly - Your mortgage payment will include principal, interest, taxes, homeowners insurance and mortgage insurance. The mortgage insurance portion of the payment will disappear after you get to a certain amount of equity in your home.
- Pay Up Front - You'll pay for the mortgage insurance up front, at closing. Thus, your monthly mortgage payment will not include an additional mortgage insurance premium.
- Lender Pays - Your pay a slightly higher mortgage interest rate and in exchange, your lender pays the mortgage insurance for you.
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