Many first-time homebuyers must purchase mortgage insurance, but few truly know exactly what it is or who it protects. Mortgage insurance is a policy that protects lenders against most of the losses that result from defaults on home mortgages. It's typically required for homebuyers who make less than a
20% downpayment.
Like home, automobile, or other types of insurance, mortgage insurance requires payment of a premium. Mortgage insurance protects the lender against loss. For example, if a borrower cannot repay a home loan as agreed, the lender may foreclose on the property and file a claim with the mortgage insurer for some or most of the total losses.
There is obviously an upfront cost associated with mortgage insurance, but there are programs out there to assist you in paying. The Federal Housing Administration (FHA) offers a Homebuyer Education Learning Program that covers topics such as budgeting, getting a loan, etc. In most cases, completion of this program may entitle you to a reduction in the initial FHA mortgage insurance premium from 2.25% to 1.75% of the purchase price of your new home. Ask your Texas REALTOR® or lender for details.
