Is “mortgage insurance” a phrase that’s been tossed around in conversations you’ve had about buying a home? It’s a simple concept, but it’s one that, like many aspects of the mortgage industry, has special cases depending on the borrower and type of loan. Here are the five things you should know about mortgage insurance.
Mortgage insurance is a common cost that’s added to the total cost of a home loan. Generally speaking, borrowers who provide a down payment that’s less than 20% of the home’s purchase price have to pay insurance in addition to the home loan. This is usually a fixed dollar amount that is added to the monthly mortgage payment; sometimes it’s a fee rolled into your closing costs. Mortgage insurance doesn’t do much for the borrower—it’s intended to protect the lender and lower their financial risk. In the event that you can’t make your home loan payments, insurance covers the lender.
Just as there are different kinds of home loans, there are different kinds of insurance too. Your loan will determine how your mortgage insurance will be structured and paid for.
Conventional loans are one of the most common home loans out there. Insurance for these loans is called Private Mortgage Insurance (PMI). In this case, your lender will set up insurance for you with a private, preferred company. Your rate will depend on your down payment amount and credit score. PMI is usually rolled into your escrow payments as a monthly dollar amount.
Try out our PMI calculator at the bottom to estimate your PMI payment!
FHA loans are well known for their lower down payments and credit scores they accept. If you have an FHA loan, your insurance will be collected by the Federal Housing Administration (FHA). Do you know insurance is required on all FHA loans, regardless of your down payment amount? This is called a Mortgage Insurance Premium (MIP). One important thing to note about mortgage insurance on FHA loans is that it includes a fee you’ll pay at closing as well as a monthly payment that’s part of your monthly mortgage bill.
If you’re a veteran or an active duty service member, there’s no better mortgage product for you! VA loans are guaranteed by the U.S. Department of Veterans Affairs and have a unique type of insurance. Rather than a fixed amount that’s included in your monthly payment, insurance on a VA loan is expressed as a funding fee that you pay at closing. Sometimes, you might be able to roll this fee into your mortgage payment, you just have to ask your lender.
USDA loans also include insurance. Similarly to FHA loans, USDA mortgages require an insurance payment at the closing table in addition to your monthly home loan payment. You might be able to roll the upfront portion of the payment, depending on your lender and your situation.
Mortgage insurance is a simple concept but it depends on the home loan you take out, your credit score, your down payment, and many other factors. Contact us today to get started and learn more!
The information and results provided by this calculator are for illustrative purposes only. This calculator is for borrower-paid monthly mortgage insurance, with a loan term of 20+ years, owner-occupied, primary residence property, fixed interest rate, conventional loan using agency conforming loan terms on purchase or rate/term refinance loan. This calculator was updated August 3, 2017. The figures generated by this calculator are based on the Radian Borrower-Paid Monthly Mortgage Insurance table effective January 1, 2017. Adjustable Rate Mortgages, second homes, and cash-out refinances will have slightly different payments. This self-help tool is for independent use and is not intended to provide investment advice. We cannot and do not guarantee this calculator's applicability or accuracy in regard to your individual and financial circumstances. We recommend you consult a financial advisor to discuss your home financing goals.