What Is Mortgage Insurance?
Mortgage insurance is a policy that protects lenders in case a borrower defaults on their loan. It does not protect the homeowner, but it allows buyers to qualify for a mortgage with a lower down payment.
Types of Mortgage Insurance
There are two main types of mortgage insurance depending on your loan type:
- Private Mortgage Insurance (PMI): Required for conventional loans when the down payment is less than 20%.
- Mortgage Insurance Premium (MIP): Required for all FHA loans regardless of down payment amount.
How Much Does Mortgage Insurance Cost?
The cost of mortgage insurance depends on factors like your loan amount, down payment, and credit score.
| Loan Type | Annual Mortgage Insurance Cost | How Long It's Required |
|---|---|---|
| Conventional Loan (PMI) | 0.5% - 2% of loan amount | Until you reach 20% equity |
| FHA Loan (MIP) | 0.85% of loan amount | Usually for the life of the loan |
| VA Loan | No mortgage insurance required | N/A |
How to Remove Mortgage Insurance
If you have PMI on a conventional loan, you can request removal when you reach 20% equity. If you have MIP on an FHA loan, you may need to refinance to remove it.
Is Mortgage Insurance Worth It?
While mortgage insurance adds extra costs, it allows homebuyers to purchase a home sooner without waiting to save a full 20% down payment.
“Mortgage insurance may seem like a burden, but it can be a stepping stone to homeownership.”
— Sarah Thompson, Financial Advisor
Frequently Asked Questions
How do I know if I have mortgage insurance?
Check your loan documents or monthly mortgage statement to see if PMI or MIP is included.
Can I remove PMI without refinancing?
Yes, once your home equity reaches 20%, you can request PMI removal from your lender.
Do all loans require mortgage insurance?
No, VA loans and some conventional loans with 20%+ down payments do not require mortgage insurance.