Generally, borrowers who make a down payment of less than 20% of the purchase price are required to have mortgage insurance.
Mortgage insurance was designed to protect the lender, in the event that you either fall behind on your payments or default on the loan.
It’s usually included in your total monthly payment that you make to your lender. Sometimes, like with an FHA mortgage, there is an amount due at closing.
Types of Mortgage Insurance
There are several loan programs that have low down payment options. Depending on which type of loan you apply for, you’ll pay for your mortgage insurance in different ways.
The lender will setup insurance with a private mortgage insurance company (PMI).
PMI rates vary depending on the amount of the down payment and the credit score.
Insuring your mortgage with the FHA includes an up front cost called the upfront mortgage insurance premium, or UFMIP.
The UFMIP carries a 1.75% charge that is either financed or included in your closing costs.
In addition to the UFMIP, there is a monthly cost that is included in your payment. This is the mortgage insurance premium (MIP).
Mortgage insurance under the USDA works similar to the FHA.
You pay an amount up front at closing, and then an amount every month as a part of your monthly payment.
Like with FHA loans you can include the up front costs in to your mortgage.
Under VA loans, there is no monthly insurance premium paid for your mortgage.
However, you will pay an amount up front called a ‘funding fee’.
The amount of the funding fee depends on the following criteria.
- Type of military service
- Down payment amount
- Disability status
- Buying or refinancing
- First time VA user
Requirements to Remove Mortgage Insurance?
According to the Consumer Finance Protection Bureau (CFPB), certain requirements must be met to remove the insurance on your mortgage.
- The cancellation request must be in writing.
- You must be current on your payments and have a satisfactory payment history
- You may have to prove that you don’t have any other liens on the home.
- An appraisal may be required to provide evidence that your loan balance isn’t more than 80% of the homes appraised value.