What is the Necessary Down Payment Needed to Avoid Mortgage Insurance?

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In order to avoid mortgage insurance on a new house purchase you need to have a very specific down payment. Learn about the minimum down payment to avoid mortgage insurance with help from a licensed California real estate broker in this free video clip.

Part of the Video Series: Real Estate
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Video Transcript

What is the necessary down payment needed to avoid mortgage insurance? Hello, I'm Jack McLaughlin, licensed broker and president of My Broker Donates. Today, we're going to talk about mortgage insurance. And, as always, I want you to remember the first rule of real estate: no surprises. The type of mortgage insurance most people carry is the type that insures the lender in the even the borrower stops paying the mortgage. That's right, private mortgage insurance insures your lender, not you. The lender requires it if you're putting down less than twenty percent of the sales price as a down payment. The less a borrower puts down, the higher the risk to the lender. So, the lender demands insurance against a default. You don't get to choose the mortgage insurance company, either, and you can't negotiate the premiums. Lenders choice. It sounds almost un-American, doesn't it? But, that's the way it works when we get mortgage insurance that exceeds eighty percent, loan to value. If you put down five percent, for example, on a two-hundred thousand dollar home, and stop making your mortgage payments, mortgage insurance would pay your lender thirty thousand dollars, which is the fifteen percent that you did not put down, to protect the lender to an eighty percent LTV. This would happen after foreclosure. FHA charges for mortgage insurance, as well. Not only do you pay an upfront premium, one point five percent of the loan amount from mortgage insurance, but you pay a monthly premium, along with your principal, interest, insurance, property coverage, and taxes. The mortgage insurance premium paid on FHA loan is always significantly higher than on a conventional program. On an FHA loan, the borrower will be charged a mortgage insurance premium, equal to one point five percent of the purchase price of the property and a renewal premium of point five percent, in subsequent years. Want to avoid mortgage insurance altogether? Make a cash down payment of at least twenty percent of the purchase price. I'm a real estate broker and not an attorney, and I am not qualified to give legal advice. You should seek the advice of a professional attorney. Regulations may vary substantially between communities. Ask a local Realtor if you have questions. If you like, I'll be happy to connect you with one, without charge. Thanks for tuning in, and remember, have fun with real estate.


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