20% is a number that often comes to mind when we’re talking about down payments on a home. However, most loan types are available with less than 20% down. These loans typically require a borrower to pay Mortgage Insurance.

IN THIS ARTICLE:

What is mortgage insurance?
What are the different types of mortgage insurance?
Who is required to have mortgage insurance?
How much does mortgage insurance cost?
When do I pay mortgage insurance premiums?

What is mortgage insurance?

Mortgage insurance (MI or PMI) is a type of insurance that is placed on loans to protect a lender in the case a borrower stops paying their payments. Mortgage insurance is typically arranged by the lender.

Mortgage insurance is paid monthly as part of your mortgage payment. Also included in your monthly payment is your principal, interest, taxes, and homeowners insurance.

What are the different types of mortgage insurance?

While there are many servicers for mortgage insurance, there’s really two main types, government and private. Government loan types such as FHA Loans, VA Loans, and USDA Loans, are insured by their respective division of the government. Conventional loans are loans not insured by the government. These have “Private Mortgage Insurance”.

Each type of mortgage insurance has it’s own sets of guidelines and costs depending on who the servicer is.

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Who is required to have mortgage insurance?

Mortgage insurance is placed on conventional loans when the borrower’s down payment is less than 20% of the purchase price. These mortgage insurance premiums can “fall off” when you reach an 80% loan to value ratio (LTV).

FHA and USDA loans require mortgage insurance on all of their loans, regardless of LTV. If your loan is either type and your LTV is 80% or below, it may be time to look into refinancing to remove the mortgage insurance.

How much does mortgage insurance cost?

Government loans are more consistent in costs than their conventional counterparts. All mortgage insurance rates on government loans are the same regardless of the borrowers credit score. Mortgage insurance rates for conventional loans will vary based on the borrowers credit score and the mortgage insurance provider.

Government loans also have up front fees for mortgage insurance. The rates vary from program to program and this up front fee can typically can be financed into your loan.

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When do I pay mortgage insurance premiums?

Mortgage insurance can be paid in three ways, up front, split, or monthly. Conventional loans have more flexibility in the ways you can pay for your mortgage insurance. You can buy out the policy so you don’t have to pay the monthly premium. You can also pay monthly or split the mortgage insurance between up front and monthly.

Most government loans have an up front and monthly cost to their mortgage insurance premiums. VA Loans, however, only require that an upfront fee be paid. This fee can be waived for disabled veterans.