When purchasing a home, it’s essential to understand the mortgage insurance requirements associated with different types of loans. Whether you’re opting for a conventional loan, an FHA loan, or a VA loan, each comes with its own set of mortgage insurance obligations. Let’s dive into the specifics for each loan type.
Conventional loans are not backed by the federal government, and they typically require private mortgage insurance (PMI) if your down payment is less than 20% of the home’s purchase price. PMI protects the lender in case you default on the loan. The cost of PMI can vary based on your credit score, loan amount, and down payment size. Once you have 20% equity in your home, you can request to cancel PMI. However, lenders can require you to pay PMI for a certain amount of time regardless of your equity position. They want you in PMI as long as possible, because PMI protects their investment.
FHA loans are insured by the Federal Housing Administration and are designed to help low- to moderate-income borrowers. Most FHA clients only put down 3.5%. With an FHA loan, you are required to pay both an upfront mortgage insurance premium (UFMIP) and an annual mortgage insurance premium (MIP). The UFMIP is typically 1.75% of the loan amount and can be rolled into the loan. For the most popular 3.5% down FHA loan, the annual MIP is 55 basis points or 0.55%. The annual MIP varies based on the loan amount, loan term, and loan-to-value (LTV) ratio.
VA loans are available to eligible veterans, active-duty service members, and certain members of the National Guard and Reserves. One of the significant benefits of a VA loan is that it does not require private mortgage insurance (PMI) or mortgage insurance premiums (MIP). This can result in substantial savings over the life of the loan. However, VA loans do require a funding fee, which can be financed into the loan amount.
Understanding the mortgage insurance requirements for different loan types can help you make an informed decision when buying a home. Conventional loans require PMI if your down payment is less than 20%, FHA loans require both UFMIP and annual MIP, and VA loans do not require PMI or MIP but do have a funding fee. Make sure to consider these factors when choosing the best loan option for your needs.
If you want detailed information on PMI, please call/text 704.675.7089, email info@purerate.com, or www.purerate.com/rates for real time rates.
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