Mortgage Insurance Overview

MORTGAGE INSURANCE (MI)

PMI, MIP, MI – it’s all the same (sort of). PMI is mortgage insurance for conventional loans, MIP is for government loans (like FHA and USDA), and MI is the generic term for all types of mortgage insurance. Bottom line: Mortgage Insurance protects the lender against losses if a borrower defaults on their home loan (i.e. gets foreclosed on).

WHAT PROGRAMS REQUIRE MI

Most folks typically assume that a 20% down payment avoids MI but this isn’t always the case. Different loan programs have different guidelines for mortgage insurance. Click on any of the programs below for details covering the MI requirements and payment methods.

  • Conventional Loans (i.e. non-government loans) typically require PMI when the Loan to Value (LTV) is greater than 80%. Conventional loans offer various options to avoid or reduce mortgage insurance and offer different methods on how to pay the MI.
  • FHA Home Loans require MIP regardless of LTV and this MI is permanent for the life of the loan. FHA loans also have an Up Front Funding Fee of 1.75% that can be rolled into the loan amount.
  • VA Home Loans do not require mortgage insurance; however, VA loans do have a VA Funding Fee that is charged to the borrower at closing and can be rolled into the loan amount.
  • USDA Home Loans require MIP regardless of LTV and also have an Up Front Funding Fee of 2% that can be rolled into the loan amount.

Mortgage Insurance can be tax deductible but is dependent on the household’s adjusted gross income.  See our page on Mortgage Insurance Tax Deductions for more details. Note: Mortgage Insurance should not be confused with Homeowner’s Insurance or with any life insurance products. Mortgage Insurance is insurance that protect the lender, not the homeowner.

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