In a nutshell, an insured loan is required when you put less than 20% down payment. If you put 20% or more, your loan becomes conventional.
Mortgage loan insurance is typically required by lenders when homebuyers make a down payment of less than 20% of the purchase price. Mortgage loan insurance helps protects lenders against mortgage default, and enables consumers to purchase homes with a minimum down payment of 5%
To obtain mortgage loan insurance, lenders pay an insurance premium. Typically, your lender will pass this cost on to you. The premium payable is based on a percentage of the home’s purchase price that is financed by a mortgage. The premium can be paid in a single lump sum or it can be added to your mortgage and included in your monthly payments.
Mortgage loan insurance is not to be confused with mortgage life insurance which guarantees that your remaining mortgage at the time of your death will not be a burden to your estate.
The Mortgage Loan Insurance premium is calculated as a percentage of the loan and is based on the size of your down payment. The higher the percentage of the total house price/value that you borrow, the higher percentage you will pay in insurance premiums.
|Loan-to-Value||Premium on Total Loan||Premium on Increase to Loan Amount for Portability and Refinance|
|Standard Premium||Self-Employed without 3rd Party Income Validation||Standard Premium||Self-Employed without 3rd Party Income Validation**|
|Up to and including 65%||0.50%||0.80%||0.50%||1.50%|
|Up to and including 75%||0.65%||1.00%||2.25%||2.60%|
|Up to and including 80%||1.00%||1.64%||2.75%||3.85%|
|Up to and including 85%||1.75%||2.90%||3.50%||5.50%|
|Up to and including 90%||2.00%||4.75%||4.25%||7.00%|
|Up to and including 95%||2.75%||6.00%||4.25%*||*|
|90.01% to 95%‚ Non-Traditional Down Payment||2.90%||N/A||*||N/A|
Remember: without mortgage insurance you may avoid the insurance premium but you can pay a higher interest rate. Some lender promotions can give you a better rate if the deal is insured. Ask us for some more details.
Probably the most important difference between an insured loan and a conventional one is that when you have an insured loan, the qualifying details and approval is based on the criteria and decision of the insurer. Every bank that insures a deal uses the insurers guidelines (exceptions are made) so the only difference between banks at this point is the interest rates and their policy regarding matters like pre-payment privileges. So essentially, if your loan is refused by one of the insurers by one bank, that loan will be refused with that insurer with ANY bank.
That being said, for conventional loans, the banks make their own approval decisions based on their own rules and qualifying guidelines.
It’s important to work with a professional who knows all the rules, which insurer to use for your situation and can guide you the right way.