Home insurance is a must-have when buying real estate. Generally, mortgage insurance protects the lender if you fail to make payments. And homeowners insurance protects your home and belongings. Let’s understand the difference between mortgage insurance vs homeowners insurance. This way, you can know exactly what kind of insurance coverage you need.
Mortgage insurance or private mortgage insurance
Mortgage insurance protects lenders if the borrower has difficulty paying the mortgage. PMI is a guarantee that the lender will receive money in any case, even if you stop paying.
If you made a small down payment (less than 20%), you will likely need to pay PMI. You can cancel this payment after repaying a certain part of the loan.
On average, PMI ranges from 0.58 to 1.86 percent of the original loan amount and is typically up to $70 in monthly expenses per $100,000 borrowed. Most often, borrowers pay private insurance once a month but can pay the entire amount at once at closing.
Is it possible not to pay PMI?
And this is not a strange question — after all, we all want to save money, and this is normal.
- Save up enough money for a larger down payment so you don’t have to pay for insurance.
- Ask your lender for help — but be aware that your interest rate will rise
- Contact a lender with a special program — some organizations offer to purchase with a small down payment but without PMI. These deals are designed for first-time home buyers, low-income families, or people in certain professions, such as doctors or teachers.
- Use a Veterans Affairs loan or USDA loan
This type of insurance protects you from risks that could physically damage your home. For example, homeowners fear fires, hurricanes, and hundreds of other things. If you do not have such insurance, you will have to pay for forced repairs yourself.
Most mortgage experts agree that Homeowners insurance is still worth buying. This way, you will protect your investment in your home and save money if something bad happens. After all, none of us are immune from natural disasters.
Although Homeowners insurance is not required by federal law, most lenders still need this type of insurance.
Conclusion | Mortgage insurance vs homeowners insurance
To summarize, the difference between the two types of insurance is who exactly the insurance protects. The borrower or the newly-made homeowner.
Schedule a consultation with LBC Mortgage to take a deep dive into the world of mortgage lending and understand all the aspects involved in buying a home!