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December 25th, 2013

6. How mortgage insurance works

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Foreclosure for SaleHow mortgage insurance works” is number six on our list of the top-10 articles of 2013.

What is mortgage insurance? Who is mortgage insurance for? What does mortgage insurance do for borrowers? Who pays for mortgage insurance? Is there anything else important to know?

Find out the answers to these questions and more in “How mortgage insurance works.”

Excerpt:

What is mortgage insurance?

It’s a financial guaranty that insures lenders against loss in the event a borrower defaults on a mortgage. If the borrower defaults and the lender takes title to the property, the mortgage insurer (MGIC, for example) reduces or eliminates the loss to the lender. In effect, the mortgage insurer shares the risk of lending the money to the borrower. (Mortgage insurance should not be confused with mortgage life insurance, which provides coverage in the event of a borrower’s death, or homeowner’s insurance, which protects the homeowner from loss due to damage from fire, flood or other disaster.)

Who is mortgage insurance for?

All home buyers can benefit. It allows them to become homeowners sooner, and it dramatically increases their buying power — excellent benefits from a buyer’s perspective. First-time buyers can use a low down payment to help them afford their first home, or to purchase a more expensive home sooner. Repeat home buyers can put less money down and gain significant tax advantages because they will have more deductible interest to claim. They can also use the cash they would have used for a large down payment for investments, moving costs or other expenses.

Be sure to read “How mortgage insurance works” in its entirety.

Previous:

10: Buying a new home when you haven’t sold the old one

9: Prepaid items vs. closing costs—what’s the difference?

8: A home improvement loan with no home equity?

7. What documents will I need to apply for a mortgage?

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

Our bloggers:

Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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