Mortgage insurance is a policy that protects the lender — not the borrower — if a borrower is unable to repay their loan. It allows lenders to offer mortgages with lower down payment options while managing risk.
When is mortgage insurance required?
Mortgage insurance requirements depend on the type of loan:
Conventional Loans
For conventional loans backed by Fannie Mae or Freddie Mac, private mortgage insurance (PMI) is typically required when the down payment is less than 20% of the home’s purchase price.
In many cases, PMI can be removed once sufficient home equity is reached, subject to loan terms and investor guidelines.
FHA Loans
Loans insured by the Federal Housing Administration (FHA) require mortgage insurance premiums (MIP), regardless of down payment amount. FHA mortgage insurance often includes both:
- An upfront premium, and
- An ongoing monthly premium
Depending on the loan structure, FHA mortgage insurance may remain for the life of the loan.
VA Loans
Loans backed by the Department of Veterans Affairs (VA) do not require monthly mortgage insurance, but they typically include a one-time funding fee.
How does mortgage insurance affect my payment?
Mortgage insurance increases your total monthly housing payment. The exact cost depends on factors such as:
- Loan type
- Down payment amount
- Credit profile
- Loan size
A licensed Mortgage Loan Officer can review your specific scenario and explain how mortgage insurance would apply to your loan options.