Real Estate Reality Homeowners mortgage insurancePosted: Updated:
PHOENIX -- If you're thinking about entering the real estate market, don't forget to factor in mortgage insurance.
Mortgage insurance is just what it sounds like; it's an insurance policy that pays your lender the loan amount in case you default. But mortgage insurance, which is required if your down payment is less than 20 percent, comes with a price.
If you're loan is $250,000, you’ll have to pay a one-time upfront insurance fee of 1.75 percent of your loan, which is $4,375. You can roll that into your loan, but it's a cost homeowners forget about.
Then, you'll have to pay monthly mortgage insurance, that's 1.35 percent of your loan and you have to divide by 12 months to figure your monthly rate. So for a $250,000 home, that's $281 you'll have to add to your monthly payment.
Homebuyers frequently forget about this amount, so make sure you budget for it when looking for a home and getting an FHA loan.