Announcement: Mortgage solutions now available in AZ, CO, FL, MT, and SC.
What is Mortgage Insurance? Your Guide to Buying a Home - Benchmark CO
What is Mortgage Insurance? Your Guide to Buying a Home

What is Mortgage Insurance? Your Guide to Buying a Home

Buying a home is one of the biggest financial decisions you’ll ever make. It’s an exciting prospect, but also one that can feel overwhelming. Aside from the down payment, there are a host of other costs to consider—and sometimes, an unexpected one sneaks in called “mortgage insurance.”

What exactly is mortgage insurance?

Think of mortgage insurance as a safety net for your lender (the bank or financial institution that gives you the loan). It doesn’t protect you, the homeowner, from anything. Instead, it protects the lender in case, for some reason, you can’t make your mortgage payments. Essentially, it means the lender takes on less risk when giving you a mortgage.

Why is mortgage insurance sometimes necessary?

Lenders like to be sure they’ll get their money back. When someone puts down a large down payment (usually 20% or more of the home’s price), it shows the lender a greater level of commitment and financial stability. It reduces the lender’s risk, and mortgage insurance becomes unnecessary.

But what if you want to buy a home and don’t have that huge chunk of change for a 20% down payment? Mortgage insurance bridges that gap. It allows you to get a mortgage with a smaller down payment, while still protecting the lender.

But I want to buy a home, how can I without 20% down?

Mortgage insurance can be the solution, especially if you have:

  • Limited savings for a down payment: You may be able to put down less and still qualify for a loan.
  • Good credit shows lenders you’re reliable, which can offset a smaller down payment.
  • A steady source of income: Lenders want to see that you can handle the mortgage payments over time.

It’s understandable to feel that way! Here’s the thing:

  • Potential for lower monthly payments: With mortgage insurance, you might get a better interest rate, keeping more money in your pocket each month.
  • You’re not stuck with it forever: In many cases, you can cancel mortgage insurance later once you’ve built up enough equity in your home.
  • Greater homeownership access: Mortgage insurance makes buying a home a reality for more people.

Mortgage insurance isn’t ideal for everyone, but it does open doors. Before diving into the homebuying process, talk to your lender to weigh the pros and cons. They can help you determine if mortgage insurance is right for you and guide you on how it will affect your specific situation