Being a novice in the Real Estate Business, are you thinking of buying your very first property? As a first-time buyer, you must be acquainted with all the essential terms of Real Estate, including Down Payment, Mortgage, Mortgage Insurance, etc. Down Payment is the money that you have to show to the lender while buying a house. The lender will not allow you a mortgage if the amount you can generate is less than twenty percent.

Down Payment being an essential part of a Real Estate Deal acts as proof that you’re capable of repaying your home loan. Don’t have it up to the required amount? Don’t Worry. Both the lenders and the borrowers can get a way out even if the down payment is not up to twenty percent.

If you are taking a home loan for the first time, you may be familiar with the term mortgage insurance. The fact that there are PMI and MIP may be confusing, but they are, in fact, two different terms. For starters, both are used to offset the default risks when the home buyers have a low-down-payment of less than twenty percent of the total price. It’s also important to know that mortgage insurance doesn’t protect a home buyer. Instead, it helps the lending entity against the risk that the buyer will default on their loan, leading to possible foreclosure.

One of the main differences between the two is that PMI is applicable where there are conventional loans and offers protection to the investors who buy the debt as a mortgage-backed security.

This private party related policy is more resilient in terms of payment. It may either be paid wholly at the time of insurance, or it may be engrossed in your monthly mortgage payments. The amount that PMI loans may vary depending upon the portion of the loan you’re taking or the individual risk factor i.e., Loan to Loan Value Ratio (LTV). LTV measures how much equity the buyer has at the initial step of borrowing.

MIP includes two primary repayment methods. It can either take a total amount at the time of closing of the deal i.e., UFMIP. Or it can be calculated yearly and be paid in the form of monthly installments.

Private Mortgage loans are either paid every month as an additional payment with your Mortgage bills. Or it can be paid off as a single large payment called single-premium mortgage insurance.

PMI is the policy of insurance that benefits only the lender and protects him from the foreclosure of the property. When you buy a house, your lender would want you to access a Private Mortgage Insurance company so that he isn’t the one facing the downfall when you run out of money.

Piggyback mortgage may help you in dodging Private Mortgage Insurance, but it has its drawbacks. Such mortgages come with higher interest rates. That means you will have to pay more.

As a first-time homebuyer, it isn’t uncommon to not be able to raise a down payment of twenty percent. But these two types of mortgage insurances have you covered if you use them effectively to buy the house of your dreams.