The only people concerned about your mortgage payment are you and the lender putting out the money for your loan. You can, however, pay for a mortgage guaranty -- a sort of insurance -- to cover your mortgage payment when you can't make your loan payments. Lenders ask newlyweds or couples with a limited credit history to bring a guarantor for the loan so your house won't end up as a foreclosure.
Mortgage loans use an underwriting service to evaluate your creditworthiness and the real property up for sale. Large banks have entire departments of trained underwriters to sift through your loan documents and ensure you can make the monthly payments on a mortgage or a car. Once the bank is satisfied your credit is good, you're on your own to make the payments, unless you pay a guarantor or buy mortgage or loan insurance.
A guarantor is a private person or a company, sometimes an insurance firm, who agrees to take over the mortgage payments if you can't. To accept the responsibility, the guarantor charges you for the coverage, usually a monthly fee. The guarantor isn't listed on the grant deed for the house or your loan. Most times the lender requires a guarantor for young couples with little credit history, or for couples taking on a large mortgage loan, even when the couple's income meets the loan requirement. [Fact checking: #2 & #9 -- under "What is a Guarantor?"]
Mandatory Private Mortgage Insurance
Private mortgage insurance provides a different sort of guarantee that your mortgage is covered. Lenders require you buy this insurance when the bank lacks confidence in your ability to make your mortgage payments. This is an offer your can't refuse, if you want your loan. The bank removes the cash for the insurance premiums as part of your regular mortgage payments. The catch to this insurance is, it only covers the lender's losses. If you fail to make your mortgage payments, the bank still forecloses on you. Any losses to the bank from foreclosing on your loan are paid for under this type of insurance policy. Expect to pay one-half of one percent of your original loan for this insurance. The insurance normally cancels when you've paid 20 percent of the property value for your single-family home. [Fact checking: CE note, #2, #5 & #8 -- "The Homeowner's Protection Act of 1998"]
Voluntary Private Mortgage Insurance
Covering yourself from potential mortgage losses means buying private mortgage coverage from an insurance company, sometimes called "mortgage life insurance." These insurance policies protect you if you lose your job, become disabled or are too sick to work -- or if you die before the loan is paid off. The upside of this insurance is you're covered. The downside is, the policy typically pays your mortgage for only a set period of time. After that you're back in trouble if you haven't found a new job or you're still having medical problems. [Fact checking: #4, #5, #6, #7 -- last two]
- MGIC: MI Basics -- MI Q & A
- Bankrate.com: Being a Mortgage Guarantor
- Realtor.com: Underwriting
- State Farm: Mortgage Protection Insurance
- CNN Money: Does Mortgage Insurance Make Sense?
- U.S. Bancorp Insurance: Home Mortgage Payment Protection
- Transamerica Life and Protection: Products
- Federal Reserve Bank of San Francisco: Private Mortgage Insurance (PMI)
- Landmark Realty and Property Management: Leasing Questions -- Prospective Tenants
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