March 13, 2024
When it is time to buy a new home, borrowers have important decisions to make about mortgage insurance. Do you know who is required to pay for mortgage insurance and why?
There are home loan programs that offer the option of paying 20% down and sidestepping the lender’s mortgage insurance requirements.
Other mortgage loans may require borrowers to come up with a larger down payment to take advantage of the option to stop paying mortgage insurance after 11 years.
Some mortgages have no insurance guidelines in this area at all. We examine these programs below.
What To Know About Conventional Loan Mortgage Insurance
There is no national standard for conventional loan mortgage insurance in terms of lender requirements. Borrowers can expect to pay 20% down on a conventional loan to avoid mortgage insurance.
What do you need to know about borrowing with a conventional lender?
For starters, your lender may or may not have a preferred mortgage insurance source, the amount your are charged may depend on your credit scores, and you may be allowed to cancel your mortgage insurance on a conventional loan when you have paid the loan down enough to hit 20% equity.
What To Know About VA Home Loan Mortgage Insurance
There’s no VA-required mortgage insurance applicable for these transactions. Why?
The Department of Veterans Affairs offers a guarantee to the lender, which amounts to the same type of guarantee they would have using mortgage insurance.
The lender is protected if the borrower defaults on the loan. No mortgage insurance premiums are payable to the lender or the VA.
You may be charged a VA loan funding fee, which represents a cost some view as comparable to mortgage insurance, but some borrowers are exempt from paying this due to receiving or being eligible to receive VA disability benefits.
What To Know About FHA Home Loans
FHA loans require mortgage insurance, period. You cannot pay your way out of the insurance requirement for either 11 years or the full term. The duration of your insurance requirement depends on your down payment, among other variables.
FHA mortgage insurance prices do not change based on your FICO scores. These loans require both an upfront premium is paid at closing time and a monthly insurance payment.
FHA monthly mortgage insurance is set a percentage of your FHA home loan amount.
In the past the cost for this insurance has ranged between 0.15% to 0.75% of the loan, divided by 12 installments paid over the course of the year.
What To Know About USDA Home Loan Mortgage Insurance
USDA mortgage insurance is similar to FHA home loan insurance. There’s an upfront insurance premium and a monthly premium paid to USDA.
The program does not use a private mortgage insurer. A monthly fee known as a “guarantee fee” is added to the mortgage payment. This fee functions similarly to FHA mortgage insurance in that it helps the USDA recoup the costs of the guarantee when needed.
By Joe Wallace
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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