Understanding Mortgage Insurance in Texas: When Is It Necessary and How to Drop It
What is Mortgage Insurance?
Mortgage insurance (MI) is a policy that protects lenders from the risk of default and foreclosure. It’s a common requirement if you’re buying a home in Texas with a down payment that’s less than 20% of the home’s value. While it might seem like an extra cost, mortgage insurance helps many Texans achieve homeownership by qualifying for mortgages that might otherwise be out of reach.
Types of Mortgage Insurance
There are two main types of mortgage insurance you might encounter:
- Private Mortgage Insurance (PMI): This type is typically required when you have a conventional loan. PMI rates can vary based on the down payment and your credit score.
- FHA Mortgage Insurance Premium (MIP): If your loan is backed by the Federal Housing Administration (FHA), you will be required to pay MIP, which includes an upfront premium and an annual premium.
When Can You Remove Mortgage Insurance?
In Texas, how and when you can remove mortgage insurance depends on the type of loan you have. For conventional loans with PMI:
- **Automatic Termination:** Once your mortgage balance reaches 78% of the original home value, your lender must automatically cancel PMI.
- **Request for Cancellation:** You can also request to have PMI removed once your balance reaches 80% of the original home value, provided you meet certain criteria such as a good payment history.
For FHA loans, it’s a bit different:
- The MIP is usually required for the life of the loan if you made a down payment of less than 10%. However, if your down payment was 10% or more, MIP can be removed after 11 years.
Steps to Remove Mortgage Insurance
If you believe you’ve met the requirements to have mortgage insurance removed, you should:
- Check your mortgage balance and compare it to your home’s original purchase price.
- Ensure your payment history is solid, with no late payments in the recent past.
- Contact your lender to request they re-evaluate your loan and remove the mortgage insurance.
Need Assistance with Your Mortgage?
Understanding the ins and outs of mortgage insurance can be tricky, but you don’t have to navigate it alone. If you need any assistance or have questions about your mortgage options in Texas, don’t hesitate to call us at 972-347-9224. Our team is ready to help you make the best decisions for your home financing needs!
