When you want to buy or refinance a home, you may be required to pay for mortgage insurance as part of your monthly payment. Mortgage insurance protects the lender in case a borrower defaults on a loan. Whether you need to pay for mortgage insurance depends on the type of loan you want and other factors. Read on to learn more!
Mortgage insurance for conventional loans
With a conventional mortgage, you may be required to pay for private mortgage insurance (PMI). You will have to pay for PMI if you make a down payment of less than 20% when you buy a house. If you make a down payment of 20% or more, you do not need to pay for PMI.
The cost of PMI depends on your credit score in addition to your down payment. That cost is typically between 0.5% and 2% of your mortgage loan amount. Once your home’s equity reaches 20%, you can often request to have the PMI canceled.
If you’re refinancing your conventional loan, you won’t be required to pay for PMI if your home’s equity is 20% or more. Read more about conventional loans.
No mortgage insurance for VA loans
Although the VA does not require mortgage insurance, VA loans usually come with a one-time funding fee. Some disabled veterans and surviving spouses may qualify for an exemption from this fee.
The funding fee is determined based on the amount of your down payment and other factors. For example, your funding fee may be lower if this is your first time buying a home with a VA loan. You can often add your funding fee to your total loan amount, so you won’t have to pay the funding fee in cash when you close the sale of the home. Learn more about VA loans.
If you’re refinancing your VA loan, you typically need to pay the VA funding fee. However, this fee is currently just 0.5% of the loan amount and you can often add it to your new loan balance rather than paying it in cash at closing.
Mortgage insurance for FHA loans
FHA loans always include an upfront mortgage insurance premium and monthly insurance premiums (MIP), regardless of the amount of your down payment. Currently, the upfront fee is 1.75% of the loan amount. The monthly premiums depend on the mortgage’s term and other factors and often cost between 0.45% and 1.05% of the loan amount.
You’ll also need to pay upfront and monthly insurance premiums when you refinance an FHA loan. If you got your current FHA loan within the past three years, you may be eligible for a refund on a portion of your previous upfront mortgage insurance premium when you refinance.
Mortgage insurance for USDA loans
The mortgage insurance for USDA loans is called guarantee fees. Like FHA loans, USDA loans have an upfront fee and monthly payments which you’ll be required to pay no matter how much of a down payment you make. The upfront guarantee fee is 1% of the initial loan amount and the annual fee is 0.35% of the average annual unpaid principal balance on your home. USDA loan refinancing also comes with guaranteed fees you will typically need to pay.