We have lived in our same home for 8 years now and living in the rocky housing market here in Phoenix, Arizona, we have seen many ups and downs all around us where we live. When we first bought our home, the market was on its way up and would shortly reach it’s peak about 9 months or a year or so after we bought our home. We watched as our home we paid $189,000 for went up to a valuation of $250,000 at the top of the peak and then plummet and continue to fall until our home was valued at somewhere are $75,000 at its lowest point. It was scary to watch many of our friends and neighbors lose their homes and have strapped themselves to tightly to a mortgage they couldn’t afford. While our home is still upside down in equity, we have been blessed to never struggle to pay our mortgage payments.
In seeing all this happen all around us over the years of being a home owner, I came to understand why mortgage insurance exists and is often needed for home purchases. Mortgage insurance helps to protect the lender against default and be able to place more confidence in the buyers. Because they are able to have protection against defaults, they are willing to accept more of the risk. If mortgage insurance didn’t exist, buyers would most likely need to be able to bring 20% of the home’s purchase price as an upfront payment on the home. It is absolutely fantastic if families are able to save up and pay a large down payment but many families are not able to and would otherwise not be able to get into a home.
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Disclosure: This post is brought to you by our friends at Genworth Financial.