- What is mortgage insurance?
- How much is mortgage insurance?
- Is there a way to avoid paying mortgage insurance?
PMI requirements vary by loan type, loan duration and/or down payment amount. Knowing these four facts can help you make the right decision and possibly save money each month by avoiding mortgage insurance all together.
Mortgage insurance is for the lender, not for you
Lenders will require mortgage insurance in certain instances — for example, when you put 5 percent down on a home instead of 20 percent down. The lender will require that you pay PMI each month, and in the event that you default on the loan, the mortgage insurance company agrees to an arranged payout to the lender for its loss.
Mortgage insurance doesn’t protect you from a loss; it is designed to help protect the lender for any loss incurred.
Mortgage insurance requirements vary by loan type
Different loan types will have different mortgage insurance requirements — and some have no requirements at all. Simple rules of thumb for popular loan programs include:
- FHA loans: Require mortgage insurance to be paid up front (UFMIP) as well as monthly (MI) if equity is less than 20 percent.
- VA loans: Do not require mortgage insurance.
- USDA loans: Do not require mortgage insurance.
- Conventional loans: Require mortgage insurance if equity is less than 20 percent.