Buying a new condo is an exciting time in your life. With the rates dropping and the availability of mortgage insurance more consistent than in the past, many homeowners want to take advantage of this opportunity by buying without the need for mortgage insurance. Learn all about your options by reading this blog article so you can enjoy your next condo with less financial pressure on yourself.
What is mortgage insurance?
Mortgage insurance is a type of insurance that protects lenders against loss in the event that a borrower defaults on their mortgage loan. Mortgage insurance is usually required when a borrower has a down payment of less than 20% of the purchase price of the home.
There are two types of mortgage insurance: private mortgage insurance (PMI) and government-sponsored mortgage insurance. PMI is typically required by lenders when a borrower has a down payment of less than 20% of the purchase price of the home. Government-sponsored mortgage insurance, such as the Federal Housing Administration’s (FHA) mortgage insurance program, protects lenders against loss in the event that a borrower defaults on their mortgage loan.
Types of mortgage insurance
Mortgage insurance protects the lender in the event of a borrower default. There are several types of mortgage insurance, including private mortgage insurance (PMI), Federal Housing Administration (FHA) mortgage insurance, and Veterans Affairs (VA) mortgage insurance.
Private Mortgage Insurance: Private mortgage insurance is required for all conventional loans with less than 20% down payment. PMI is paid by the borrower and typically costs 0.5-1% of the loan amount per year.
Federal Housing Administration Mortgage Insurance: FHA mortgage insurance is required for all FHA loans. The upfront premium is 1.75% of the loan amount, and the annual premium is 0.45%-1.05% of the loan amount, depending on the loan term and Loan-to-Value Ratio (LTV).
Veterans Affairs Mortgage Insurance: VA mortgage insurance is required for all VA loans with less than 20% down payment. The upfront premium is 2.15% of the loan amount, and the annual premium is 0.5% of the loan amount for loans with terms greater than 15 years, or 0.35% for loans with terms 15 years or less.
Mortgage insurance is not required for all loans. For example, if you make a down payment of 20% or more on a conventional loan, you will not be required to purchase PMI.
Why do lenders require mortgage insurance?
There are several reasons why lenders require mortgage insurance when you purchase a condo with a mortgage. The main reason is to protect the lender in case you default on your loan. If you have mortgage insurance, the lender will be reimbursed for any losses they incur as a result of your default.
Another reason why lenders require mortgage insurance is to protect themselves from potential lawsuits. If you default on your loan and the lender is forced to foreclose on your condo, they could be sued by the association or by other unit owners. Mortgage insurance would cover any legal fees and damages that the lender might have to pay as a result of such a lawsuit.
Lastly, mortgage insurance protects the lender in the event that you die before your loan is paid off. If you have a spouse or partner, they would be responsible for repaying the loan. However, if you are unmarried or have no heirs, the lender would be left with no way to recoup their investment. Mortgage insurance would pay off the outstanding balance of your loan in such a scenario, protecting the lender from loss.
Mortgage insurance is thus a way for lenders to minimize their risks when lending money to condo buyers. It allows them to offer loans with lower down payment requirements, which makes homeownership more accessible to more people.
How much will a bank charge for getting a new condo with no mortgage insurance?
The average bank will charge between 1% and 3% of the loan amount for getting a new condo with no mortgage insurance. This fee can be paid upfront or added to the loan balance. Depending on the lender, you may also have to pay application, origination, and/or appraisal fees.
The advantages and disadvantages to purchasing a home this way
There are a few things to consider before buying a new condo with no mortgage insurance. On the plus side, your monthly payments will be lower because you won’t have to pay for mortgage insurance. Also, you may be able to take advantage of special financing offers that are available only to buyers who don’t have to pay mortgage insurance. On the downside, you’ll likely need a larger down payment than you would if you were getting a conventional loan with mortgage insurance. And, if your condo complex isn’t well-maintained or doesn’t have enough reserves, you could be on the hook for special assessments or higher monthly fees. So be sure to do your homework before buying a new condo with no mortgage insurance.
When you’re ready to buy a new condo, there are a few things you should keep in mind to make sure you get the best deal possible. First, be sure to comparison shop for both the condo itself and for mortgage insurance. There are a lot of different products out there, so it’s important to find the one that best fits your needs. Second, don’t be afraid to negotiate with the seller on the price of the condo. If you do your homework and know what the market value is, you’ll be in a good position to get a great deal. Finally, remember that buying a new condo with no mortgage insurance can save you a lot of money in the long run. Be sure to factor that into your decision-making process when you’re ready to purchase your new home.