Question:

Mortgage Insurance Definition

Answer:

Mortgage insurance is issued by FHA or private insurers and is designed to protect lenders in case their clients become delinquent on payments. The lender will be reimbursed by the insurer if the client severely defaults and the foreclosure sale price does not cover the outstanding mortgage balance and the foreclosure costs.

Mortgage insurance is obligatory for buyers who are unable to make a 20% down payment. Mortgage insurance allows for mortgage loans with as little as 3% or, in some cases, even 0% down payment.

If the mortgage insurance is provided by a commercial insurer and not by the Federal Housing Authority (FHA), it is called PMI - private mortgage insurance.

Mortgage insurance can include coverage for mortgage repayment in case the borrower suffers disability or death. In this case both sides are protected - both borrowers and lender.

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