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Mortgage insurance is a contract that insures the lender against loss caused by a borrower's default on a government mortgage or conventional mortgage. That is, if you don't pay your mortgage, the insurance company "protects" the lender by paying a portion of the mortgage (however, this puts you in default and you'll have a VERY hard time getting credit again).
Most lenders generally require mortgage insurance for a loan that is greater than 80% if the value of the property. Mortgage insurance can be issued by a private company (such as GE) or by a government agency such as the Federal Housing Administration (FHA). Depending on the type of mortgage insurance, the insurance may cover a percentage of or virtually the entire mortgage loan.
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