For most buyers, the biggest obstacle in obtaining their own home is the advance payment. Private mortgage insurance ("private mortgage insurance," or private MI) allows you to buy a home with a lower advance than would be necessary in other situations.
In general, lenders and investors require mortgage insurance for loans with advances of less than 20%. MGIC mortgage insurance provides lenders with a financial guarantee in the event that a loan is subject to foreclosure. This guarantee allows many lenders to not require an advance of 20% when they grant loans for housing.
This is how it generally works:
A borrower who purchases a home of $ 150,000 pays a 10% down payment, or $ 15,000.
The lender obtains private mortgage insurance on the borrower's $ 135,000 mortgage, thereby reducing his risk of loss from $ 135,000 to $ 101,250.
Private mortgage insurance covers the upper portion of the mortgage: usually between 25 and 30%. In this case, the mortgage insurance absorbs 25%, or $ 33,750, of any final loss that the lender may suffer.
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What are the benefits?
While mortgage insurance is clearly beneficial to lenders, often homebuyers do not take into account the benefits that insurance can offer them. They can be important and include:
Buy a home more quickly: a loan to a higher value means the need to save less time to collect an advance.
Greater purchasing power: if you have a certain amount reserved for the advance, using the mortgage insurance can allow you to spend more expensive housing than you would if you had to pay an initial 20%.
Expansion of cash flow options: You can pay a lower advance and keep cash for other purposes (make investments, pay off debts, pay for home improvements or cover emergencies).
Receiving a refund: some mortgage insurance options allow the prorated reimbursement of premiums after cancellation.
Faster approvals: Loans with mortgage insurance are usually approved more quickly than those without mortgage insurance or government-supported structures.
Cancellation of coverage: many mortgage insurance options allow cancellation when they are no longer needed.
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Mortgage insurance options
MGIC works in partnership with lenders to offer several options to buy a home. Our most popular programs include:
MGIC monthly premiums
With this option, you will not experience any increase in the loan amount and you will not need additional cash for closing. The loan amount is paid along with the monthly mortgage payment. Generally, the mortgage insurance coverage can be canceled once the loan amount reaches between 75 and 80% of the value of the home.
MGIC's unique premiums paid by the borrower
With this premium plan, you will have the option to pay the mortgage insurance premium in a lump sum at closing without making monthly payments. Depending on the lender's guidelines and your individual situation, you may be able to finance the premium in the total amount, thereby reducing closing costs. However, many lenders do not allow financing the premium on the loan, especially if the borrower does not pay at least 10% in advance, so this option may require a higher payment at closing.
Divided premiums of MGIC
With this option, a portion of the mortgage insurance premium is paid in advance for the closing, in order to reduce the amount that must be paid along with the monthly mortgage payment. As with the single premiums paid by the borrower, you will have the possibility to finance the amount of what is paid in advance. Also in this case it will depend on the lender and the advance you pay. This premium plan is also cancelable.
MGIC mortgage insurance paid by the lender
As the name implies, with the MGIC mortgage insurance program paid by the lender, it is the lender and not you who pays the mortgage insurance premium. However, to cover the cost of the premium, the lender may increase the loan charges or the interest rate.
The important thing to remember is that MGIC mortgage insurance offers several options. Buying a home is one of the most important financial decisions that can be made in life. It is convenient to take it after knowing all the options.
Mortgage insurance of MGIC and FHA
Private mortgage insurance is the private sector alternative to mortgage insurance from the Federal Housing Administration (FHA), which is a government program supported by taxpayers.
Both MGIC's mortgage insurance and the FHA's government program help borrowers buy a home with an advance of less than 20% of the property's value. Most providers offer both options. However, to determine what is the best option for you, you must assess your personal situation. Therefore, it is important that you make sure that the provider presents you with both options.
When making a decision, do not evaluate only the difference of the monthly payments or the interest rate. While those two aspects are important, the mortgage is not an event that lasts only one day. Remember also to take into account long-term factors, such as total financing costs and the accumulation of property capital.
Some of the advantages that MGIC mortgage insurance can offer you are:
Save thousands of dollars in total mortgage insurance expense and increase property capital, not the loan amount
FHA requires an upfront premium that is often financed in the loan, which is why the loan amount and long-term debt obligation increase. With MGIC's monthly mortgage insurance, you do not need to pay any premium in advance, which allows you to save thousands of dollars in mortgage insurance premium payments for the entire duration of the loan and immediately place you in a much better position. terms of property capital.
Lower monthly payments or similar
Undoubtedly, the monthly payment is an important aspect. Borrowers with good scores or who pay an advance above the minimum will discover that MGIC mortgage insurance is a very competitive option when compared to the FHA.
The opportunity to cancel your mortgage insurance coverage
For a 30-year mortgage, the FHA will not normally allow you to cancel the monthly mortgage insurance payment unless you have paid 10% or more down payment at the time you receive the loan. And even in that case, you'll have to wait 11 years before you can cancel coverage.
However, private mortgage insurance must be canceled automatically once the loan has reached a certain LTV, and the borrower can request that it be canceled sooner. In fact, most credit providers allow you to perform a new appraisal to determine if you can cancel your MGIC mortgage insurance and reduce your monthly payments. A new appraisal allows you to take advantage of increases in the value of your property as a result of the improvements you have implemented or the revaluation of the market.
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Law of Fairness of Reports (FCRA)
Why did I receive a letter about an adverse action?
If you receive a notice of adverse action from MGIC, it means that your lender applied for MGIC mortgage insurance coverage for your loan and, based on a credit score or other credit report data that you provided to MGIC, we decided Do not insure the loan or that the rate that we should charge the lender for the mortgage insurance will be higher than it would be if your credit information were better.
What information on my credit report made the mortgage insurance rate higher?
The score that MGIC uses to determine the mortgage insurance rate that will apply to your loan is based on the information in your file at consumer credit reporting agencies. The scores are determined through a model at the moment they are requested. Although companies do not disclose the formula they use for credit scoring models, most of them are based on a combination of several factors, such as the credit payment history, the amount of money owed, the extent of the history and other factors. factors. If you request your credit score, ask about the factors that influenced the calculation.
How do I claim if I feel that my credit report information is not accurate or is not complete?
The notice includes the name and contact information of the consumer reporting agency that produced the score or information we used to make our decision. Contact the consumer reporting agency to request a free copy of your credit report. Along with the report, you will receive instructions to correct information that you believe is inaccurate or incomplete.
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What is the Equity Law of Credit Reports?
The Fairness of Reports Act (FCRA) is a federal law that promotes the accuracy, impartiality, and privacy of the information contained in the records of consumer reporting agencies (known as
What is the Mortgage Guaranty Insurance Corporation?
Mortgage Guaranty Insurance Corporation (MGIC) is the leading provider of private mortgage insurance in the country. We are the founders of an industry that has allowed millions of families to buy a home of their own. Private mortgage insurance allows buyers to pay an advance of just 3% of the purchase price to purchase a home.
I did not give them permission to request a report on my credit situation, so how can they have obtained my credit report?
The Fairness of Reports Act (FCRA) restricts the purposes for which consumer reporting agencies can provide credit reports. You have the ability to provide written instructions to authorize a consumer reporting agency to give your credit report to another person. However, according to the FCRA, consumer reporting agencies may also submit your credit report without your consent to other people, such as lenders and insurers who are involved in an application or insurance that you have made. Since MGIC evaluates a mortgage insurance requested following your loan request, according to the FCRA you are allowed to obtain your credit report.
How will my information influence the mortgage insurance rate?
Lenders usually charge borrowers the cost of mortgage insurance. MGIC offers mortgage insurance programs for various types of loans and credit profiles. If you receive a notice of "adverse action" from MGIC, it means that, in the program applicable to your loan, the rate we charged to the lender for the mortgage insurance was greater than our lowest rate based on your information. of credit. Depending on how the lender recovers the cost of the mortgage insurance premium on your loan, the payments or loan charges that you may have to pay may be higher than in the case of the mortgage insurance rate. it was lower.
What happens if there has been an error or incorrect information has been included in my credit report?
The rate that MGIC charges the lender for mortgage insurance is based on the information provided by the lender. If corrected information is received before closing the transaction, it may influence the mortgage insurance premium; however, the insurance will become effective when the loan operation is closed. Correcting the wrong information in your credit file is important and can improve the terms of the credits and insurance offered in the future. For information on how to correct incorrect information in your credit file, visit the FTC website.
