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Mortgage Insurance: What is it and when is it required?

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If you are putting less than 20 percent of the sales price down when purchasing, or borrowing more than 80 percent of your home's value when refinancing, chances are good you'll be required to obtain mortgage insurance.

Historically, lenders considered loans with less than a minimum of 20 percent down very risky. Thanks to mortgage insurance which offsets that risk, we can now fund many loans up to 97 percent of a sales price or home's value.

You can pay for mortgage insurance in a variety of ways including monthly payments or a single payment which may be financed into the loan or negotiated for the seller to pay. Yes, it's a little extra but by putting a little less down, you might be able to purchase a more-expensive home, or keep more cash in your emergency fund.

Over time, as your equity grows, you may be able to cancel the mortgage insurance.