What is Mortgage Insurance or MI?

Mortgage insurance is required by the lender in cases where the borrower has a loan that is more than 80% of the value of the home or 'loan to value' (LTV). The coverage which mortgage insurance provides insures the lender in cases of default. The amount of MI can vary depending on the lender. Some lenders figure MI based on the borrower's the credit score, some are figured based on the LTV, etc. On an FHA loan the mortgage insurance is required to be paid 'up front' (i.e.: before funding the loan).

If you do not have the 20% down payment needed to qualify for the purchase of the home of your dreams, there are options: You can take out a 2nd mortgage (subordinate to the first mortgage) at the same time of the first mortgage. This can be done with what is called a '5,10,15' or 20% 2nd loan. Keep in mind that rates on a 2nd mortgage (subordinated) loan are much higher than the rate for a first, because they involve more risk to the lender, since the second mortgage is what is called 'subordinate' to the first mortgage in the case of any default (failure to pay). If you do not deal with a qualified, experienced loan officer, it is very unlikely that you will know what your best options are.

Usually the mortgage insurance can be removed after 2 years if the loan balance is less than 80% of the 'LTV'. You will need to prove this to get the MI removed, by obtaining a new appraisal on the home and then sending it to your lender with a request to remove the mortgage insurance.