Mortgage Insurance Requirements by Loan Type
Some loan types allow you to pay 20% down to avoid mortgage insurance altogether. Other loan types may allow you to make a larger down payment and stop paying mortgage insurance after 11 years.
And other loans have no program-required mortgage insurance guidelines at all. Which is which?
Conventional Loan Mortgage Insurance Requirements
There’s no real standardization for conventional loan mortgage insurance guidelines, but typically if you pay 20% down, you can avoid paying mortgage insurance.
- Conventional loans require private mortgage insurance unless you make the 20% dowpayment.
- Your lender may or may not have a preferred mortgage insurance provider.
- The amount you pay will vary based on your credit scores and other variables.
- NerdWallet estimates that a home loan for $150k and 4% down payment will likely result in a monthly mortgage insurance payment of under $200.
- You are typically permitted to cancel your mortgage insurance on a conventional loan when you reach 20% equity.
There’s no VA-required mortgage insurance for VA home loans since the Department of Veterans Affairs offers a guarantee to the lender, which accomplishes the same thing. VA loans do require an upfront VA loan funding fee, but veterans who receive or qualify to receive VA disability benefits may be exempt from this fee.
Federal Housing Administration Home Loans
FHA loans require mortgage insurance for either 11 years or the full term, depending on your down payment and other variables. This mortgage insurance does not have credit score-driven pricing, and an upfront premium is paid at closing time in addition to the monthly insurance requirement.
FHA monthly mortgage insurance is priced at a percentage of the loan amount. Typically it may range between 0.15% to 0.75% of the loan, divided by 12, which represent your 12 payments for the year.
USDA Home Loans
USDA mortgage insurance is structured similarly to FHA home loans. There’s an upfront insurance premium and a monthly premium, but this is paid to USDA and not to a private mortgage insurer.
USDA.gov notes, “USDA Guaranteed Loans are charged an annual guarantee fee instead of mortgage insurance. Guarantee fees are paid to USDA by the approved lender and are usually included in the homeowner's monthly loan payment.”
In the past, the insurance included an upfront fee, which the USDA labeled a “guarantee fee,” plus a .50% annual guarantee fee for the principal loan amount.
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