Everyone wants a part of your payment when you buy a home.  It’s a wonder that the mortgage gets paid off in thirty years with everyone reaching for a piece of the pie.  One hand in the group is for mortgage insurance.

Mortgage insurance is a policy that takes effect in the event that a homeowner defaults on their home loan.  However, the policy doesn’t help the homeowner as one might think.  It benefits the lender and him alone.  Part of the mortgage payment each month will be for the mortgage insurance premium. 

The ones who avoid the mortgage insurance trap are those who can afford to pay down at least twenty percent of their mortgage.  A twenty percent down payment will eliminate it from the start.  Once a homeowner reaches the point when twenty percent of their home price is paid, the mortgage insurance policy can be cancelled.

What will you pay for your insurance?  The premium prices may vary but shouldn’t run to more than $100 per month.  This is in addition to the other components that go into your mortgage payment.  A mortgage payment that is already $800 will be raised to $900 each month.  With an adjustable rate mortgage, that same $100 can seem like a nail in the coffin.

What can you do?  Shop around and compare prices.  For the most part, the premiums will be similar.  Private mortgage insurers can offer a wealth of options.  They have standard plans that are acceptable to the average homeowner and special plans that are more affordable for homeowners who need them.

Check with private companies to see what types of loans they insure.  A high-risk loan may not be one that they deal with, or they may charge higher premiums because of the higher chance of default.  They may not insure loans where less than a certain percentage has been paid as the down payment.

The FHA offers a program for those who need a little more assistance.  The program helps people with the home buying process.  They teach on subjects like budgeting, how to qualify for a loan, how to find a home in the right price range, and how to keep your home in good condition.  People who successfully complete the program are eligible for a reduction in their FHA mortgage insurance premiums.  The premium price is reduced by half of a percent from the original price.

Which is better - lender or private?  That depends on your unique situation.  Ideally, you want a policy that won’t increase your mortgage payment too much since you will be paying that premium for several years.  Private mortgage insurance can offer lower premiums for a qualifying loan, but special programs have merit for those who have the need that they can meet.