The main benefit of mortgage insurance to the lender is that it protects the lender in the case that the borrower defaults on the loan, according to FHA.com. It also offers borrowers a way to buy a home without having to have the standard 20 percent down payment. Borrowers who do not have the cash saved up for a 20 percent down payment on a home may not be in the best financial situation, which is why those borrowers are typically the ones required to have mortgage insurance.Continue Reading
For FHA loans, the first year of mortgage insurance is usually required to be paid upfront, and the rest of the payments are rolled into the regular monthly mortgage payment. This does not mean that the borrower must pay the first year's mortgage insurance out of pocket, however. This is usually part of the closing costs and may also be able to be rolled into the total amount of the loan, depending on the borrower's situation.
The standard amount of mortgage insurance for an FHA loan is 1.75 percent of the total loan amount, according to FHA.com. The mortgage insurance is usually paid for the life of the loan unless the borrower refinances.Learn more about Credit & Lending