Ask An Agent: Mortgage Insurance

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Welcome to Ask an Agent. If you have any real estate questions you want answered, email us at and we’ll feature your answer on an upcoming blog post.

AaAQuestion: What is mortgage insurance and how does it work?

For most homebuyers, the biggest hurdle to owning a home is the down payment. Private mortgage insurance, or private MI, can allow you to purchase a home with less down than what otherwise may be required.

Lenders and investors typically require mortgage insurance for loans with down payments of less than 20%. MGIC MI provides lenders a financial guaranty should a loan go into foreclosure. It is this guaranty that allows many lenders not to require a 20% down payment when making home loans.

Here’s how it generally works:

  • A borrower buying a $150,000 home makes a 10%, or $15,000, down payment.
  • The lender then obtains private MI on the borrower’s $135,000 mortgage, reducing its exposure to loss from $135,000 to $101,250.
  • The private MI covers the top portion of the mortgage – usually the top 25% to 30%. In this case, the MI will absorb 25%, or $33,750, of any ultimate loss to the lender.

Your real estate agent and loan officer will coach you through purchasing mortgage insurance and can provide you with details to make the home buying process easier.

Information courtesy of MGIC.

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Categories: Home Buying, Mortgage

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