In short, you will be asked for an insured loan from the moment if your down payment is less than 20%. If your down payment exceeds 20% your loan becomes conventional.
What is mortgage insurance?
Mortgage insurance is generally requested by lenders when the buyer deposits a down payment of less than 20% of the purchase price. The insurance is used to protect the lender in case of default and to buy a home with a minimum down payment of 5%.
To get insurance on a mortgage loan, the lender will have to pay an insurance premium that he will usually pay you. The premium is based on a percentage of the purchase price of a mortgage home financed.You can pay this premium separately or include it in your mortgage to pay monthly.
Also Read: advantage and disadvantages of FHA loans
Mortgage insurance should not be confused with the mortgage life insurance that is there to take over your mortgage at the time of death.
What is the cost of mortgage insurance?
Remember: by switching from mortgage insurance, you avoid the premium. However, you can pay a higher interest rate. Some lenders will give you a preferential rate if you are insured. Contact us for more details.
The biggest difference between an insured loan and a conventional loan is that when you are insured, the qualifying information and the approval are based on the insurer’s criteria and decisions. Any bank that insures a transaction follows the insurers’ guideline (with few exceptions), the only difference between banks is the interest rate and their policy regarding topics such as prepayment privileges. For summary, if your loan and refused by the insurer, this loan will be refused with this insurer by ALL banks.
That said, with respect to conventional loans, banks follow their own guidelines for qualifying criteria as well as for approval.
It is important to work with a professional who is familiar with this environment and its rules, who will tell you which insurer is right for you and will guide you through this step.
BELOW IS A SUMMARY OF MORTGAGE RULE CHANGES MADE BY THE FEDERAL GOVERNMENT SINCE 2010.
Entered into force: 19 April 2010
Qualification rate is the rate displayed over 5 years for:
- fixed rates 1-4 years
- variable mortgages
- New maximum amount of refinancing
- from 95% to 90% loan-value – employee borrower
- from 90% to 80% loan-value – self-employed or solemn declaration of income
- Minimum down payment of 5% to 20% for unoccupied properties (in-investment) * second homes not included
- Entered into force: 18 March 2011
- Maximum depreciation period
- loan-value below 80% goes from 35 to 30 years
- loan-value under 80% at the attention of the lender
- New maximum refinancing
- loan-to-value from 90% to 85% – employee borrowers
- self-employed 80% maximum
- Entered into force: 18 April 2011
- MCH – Home Equity Line of Credit – Maximum 80% Home Loan
- Entered into force: 9 July 2012
- Maximum refinancing from 85% to 80% loan-to-value – employee borrowers
- Limitation of the maximum for the gross loan repayment ratio (based on household income), and maximum repayment ratio, respectively 39% and 44%
- maximum amortization period
- loan-to-value amortization greater than 80% goes from 30 to 25 years
- loan-value under 80%, to the attention of the lender
- no mortgage insurance for properties over $ 1 million
- Credit margin reduced from 80% to 65% of the value of the property
- Qualifying rate for enhanced conventional loans, ranging from less than 5 years to a commitment over a period of 5 years
- Income Tax Return: self-employed individuals must now document their income in a reasonable manner. Oral statements are now a thing of the past for current lenders.
- Limit (and possible disappearance) of mortgages return cash “cashback”
- Limit on products and programs of equity