Mortgage Monday: What is mortgage insurance?

What is mortgage insurance and do I need it?

Mortgage insurance is an insurance policy insuring that you will not default on a loan. It is required if you receive funding for a home that has a loan-to-purchase ratio greater than 80%. Let’s say, for example, you are a first time home buyer and have attended a Washington State Finance Commission seminar on their Home Key program. They offer financing that will assist you with your down payment. You would then have a first mortgage for the purchase price of your home and a second mortgage that covers the down payment. You would have a down payment of  10% and have a loan-to-purchase ratio of 90%. Thus you would be required to pay Private Mortgage Insurance, or PMI, until your loan to value ratio was 80%.

If you have a down payment of 20% or more, you would not be required to pay PMI.

If you have any questions, please ask.

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