Why Insurance Is Important When Taking Out A Mortgage
Buying a house is one of the most significant milestones in an adult’s life. There’s nothing like the feeling of being able to call a property your own.
Before you can purchase a residence, though, you have to take out a mortgage, which is a complex process in itself. It involves filling up documents, looking for a home that’s for sale, and purchasing insurance, which is a crucial part of the journey to becoming a homeowner for both you and the lender.
What Is Mortgage Insurance?
Typically, most homebuyers take out a mortgage or borrow money from banks or other financial institutions to pay for their property of choice in monthly installments. Having insurance can allow you to give a lower down payment since it serves as a safety net for the lender in case you default or are unable to repay your loan.
For conventional loans, lenders usually require homebuyers to purchase private mortgage insurance (PMI), especially if the client can only make a down payment that is lower than 20 percent on a property. Read this guide to PMI to understand how this type of insurance works.
How Important Is Mortgage Insurance?
Mortgage insurance protects the lender, but the homebuyer has to cover the cost. It can seem as if the consumer is at a disadvantage with this additional real estate expense.
Nonetheless, the process also provides benefits for you as a homebuyer. Here are the reasons why insurance is important when taking out a mortgage:
- Obtain Easy Access To The House Of Your Dreams
When you have arranged for mortgage insurance upon applying for your loan, lenders will look more favorably upon your application. This process comes with an increased chance of getting approved and, ultimately, being able to afford the house of your dreams.
Whether you’re an employee, business owner, or a freelancer, mortgage insurance can help you access the traditional marketplace more easily. This is particularly valuable if you are looking to purchase a property, but don’t have a steady income.
- Get Better Interest Rates
One of the first things you should do before buying a house is to know your credit score because it can help you get better interest rates with your loan. However, did you know that you can also enjoy lower interest rates when you have mortgage insurance?
As mentioned above, lenders will look favorably upon your application when you have insurance because it also protects them in case you miss one or two monthly payments for your loan. When they see that you’re financially prepared for the home purchase, they’ll be more open to you and may even give you a good deal.
With a good credit record and mortgage insurance, you can find better products on the real estate market that cater to your needs and preferences.
- Protect Yourself During Economic Crises
Today’s COVID-19 situation has become a challenging time for the economy, with the government encouraging everyone to stay home and work being paused as compliance. Most companies have opted for a work-from-home arrangement with their employees. You’re fortunate if you can still earn an income while on lockdown, as well as continue your monthly payments.
However, there are business owners who may have had to shut down their restaurants or offices to keep their employees safe. If you’re one of them, it would be good to have mortgage insurance to give yourself a few weeks or months as extra allowance for the repayment. This way, you’re protecting yourself and the lender for the duration of this national crisis.
- Enjoy The Premium On Your Next Purchase
Another primary advantage of mortgage insurance is that it’s transferable. This means that you can use the premium for another property. If you’re looking to buy a new home, you can save the money you paid for the insurance, and transfer it to your next purchase.
Plus, being able to maintain this payment record can also show lenders that you’re financially responsible and trustworthy. With this, you can get better interest rates and potentially lower the cost of your next property.
Mortgage insurance is a policy that’s paid for by the homebuyer to protect their interests as well as those of the lender. It allows you to choose and gain access to the house of your dreams by opening up the entire marketplace, particularly the parts that you couldn’t have reached due to the price range.
Next, you can get better interest rates if you pair your good credit rating with mortgage insurance. Plus, you can protect yourself during economic crises when you can’t pay your dues for a month or two. Lastly, you can maintain the payment record and enjoy the premium on your future purchase.