Typically, borrowers making a down payment of less than 20 percent of the purchase price of the home will need to pay for mortgage insurance. Mortgage insurance also is typically required on FHA and USDA loans. Mortgage insurance lowers the risk to the lender of making a loan to you, so you can qualify for a loan that you might not otherwise be able to get. But, it increases the cost of your loan. If you are required to pay mortgage insurance, it will be included in your total monthly payment that you make to your lender, your costs at closing, or both.
About mortgage insurance
Mortgage insurance protects the lender, not you
Mortgage insurance, no matter what kind, protects the lender – not you – in the event that you fall behind on your payments.If you fall behind, your credit score may suffer and you can lose your home through foreclosure.
There are several different kinds of loans available to borrowers with low down payments. Depending on what kind of loan you get, you’ll pay for mortgage insurance in different ways:
Loan types and mortgage insurance
Conventional loan
If you get aConventional loan, your lender may arrange for mortgage insurance with a private company.Private mortgage insurance(PMI) rates vary by down payment amount and credit score but are generally cheaper than FHA rates for borrowers with good credit. Most private mortgage insurance is paid monthly, with little or no initial payment required at closing. Under certain circ*mstances, you can cancel your PMI.
Federal Housing Administration (FHA) loan
If you get a Federal Housing Administration (FHA) loan, your mortgage insurance premiums are paid to the Federal Housing Administration (FHA).FHA mortgage insurance is required for all FHA loans. It costs the same no matter your credit score, with only a slight increase in price for down payments less than five percent. FHA mortgage insurance includes both an upfront cost, paid as part of your closing costs, and a monthly cost, included in your monthly payment.
If you don’t have enough cash on hand to pay the upfront fee, you are allowed to roll the fee into your mortgage instead of paying it out of pocket. If you do this, your loan amount and the overall cost of your loan will increase.
US Department of Agriculture (USDA) loan
If you get a US Department of Agriculture (USDA) loan, the program is similar to the Federal Housing Administration, but typically cheaper.You’ll pay for the insurance both at closing and as part of your monthly payment. Like with FHA loans, you can roll the upfront portion of the insurance premium into your mortgage instead of paying it out of pocket, but doing so increases both your loan amount and your overall costs.
Department of Veterans’ Affairs (VA)-backed loan
If you get a Department of Veterans’ Affairs (VA)-backed loan, the VA guarantee replaces mortgage insurance, and functions similarly.With VA-backed loans, which are loans intended to help servicemembers, veterans, and their families, there is no monthly mortgage insurance premium. However, you will pay an upfront “funding fee.” The amount of that fee varies based on:
- Your type of military service
- Your down payment amount
- Your disability status
- Whether you’re buying a home or refinancing
- Whether this is your first VA loan, or you’ve had a VA loan before
Like with FHA and USDA loans, you can roll the upfront fee into your mortgage instead of paying it out of pocket, but doing so increases both your loan amount and your overall costs.
Beware of "piggyback" second mortgages
As an alternative to mortgage insurance, some lenders may offer what is known as a “piggyback” second mortgage
This option may be marketed as being cheaper for the borrower, but that doesn’t necessarily mean it is. Always compare the total cost before making a final decision. Learn more aboutpiggyback second mortgages.
How to get help
If you’re behind on your mortgage, or having a hard time making payments, you can use the CFPB's"Find a Counselor"tool to get a list of housing counseling agencies in your area that are approved by HUD. You can also call theHOPE™ Hotline, open 24 hours a day, seven days a week, at (888) 995-HOPE (4673).
FAQs
Mortgage insurance lowers the risk to the lender of making a loan to you, so you can qualify for a loan that you might not otherwise be able to get. Typically, borrowers making a down payment of less than 20 percent of the purchase price of the home need to pay for mortgage insurance.
What is mortgage insurance and how does it work? ›
Mortgage insurance is an insurance policy that protects a mortgage lender or titleholder if the borrower defaults on payments, passes away, or is otherwise unable to meet the contractual obligations of the mortgage.
How does mortgage protection insurance work? ›
MPI is a type of insurance policy that helps your family make your monthly mortgage payments if you – the policyholder and mortgage borrower – die before your mortgage is fully paid off. Certain MPI policies also offer coverage for a limited time if you lose your job or become disabled after an accident.
What is the purpose of PMI? ›
Private mortgage insurance (PMI) is a type of mortgage insurance you might be required to buy if you take out a conventional loan with a down payment of less than 20 percent of the purchase price. PMI protects the lender—not you—if you stop making payments on your loan.
What is CFPB in mortgage? ›
We're the Consumer Financial Protection Bureau (CFPB), a U.S. government agency that makes sure banks, lenders, and other financial companies treat you fairly.
What is mortgage insurance and how can you avoid it? ›
Its purpose is to protect the lender in case the borrower defaults on the loan, reducing the lender's financial risk. Borrowers can explore various strategies such as making a 20% down payment, seeking government-backed loans, or opting for lender-paid PMI to avoid paying PMI and reduce their overall mortgage costs.
What is mortgage insurance and how long does it last? ›
Private mortgage insurance (PMI) is an extra monthly fee that you pay on a conventional mortgage if you put less than 20 percent down. PMI must be terminated at a certain point in your loan term or when your mortgage balance drops to a certain percentage of your home's worth.
How does PMI benefit the buyer? ›
Why Mortgage Insurance. Private mortgage insurance enables borrowers to gain access to the housing market more quickly, by allowing down payments of less than 20%, and it protects lenders against loss if a borrower defaults.
How much does PMI cost per month? ›
But in general, the cost of private mortgage insurance, or PMI, is about 0.5 to 1.5% of the loan amount per year. This annual premium is broken into monthly installments, which are added to your monthly mortgage payment. So a $300,000 loan would cost around $1,500 to $4,500 annually — or $125 to $375 per month.
Is PMI good or bad? ›
PMI is an avoidable extra cost associated with buying a home. That said, sometimes paying PMI is the right move; it can help you get into a home that would otherwise be out of reach.
If you're having trouble with a credit card, you can submit a complaint to the CFPB online or by calling (855) 411-CFPB (2372). If you're not satisfied with the merchant's response, you may be able to dispute the charge with your credit card company and have the charge reversed. This is sometimes called a chargeback.
What does the CFPB have authority over? ›
The CFPB supervises a range of companies to assess their compliance with federal consumer financial laws. We have supervisory authority over banks, thrifts, and credit unions with assets over $10 billion, as well as their affiliates.
Is there a class action lawsuit against OneMain Financial? ›
Class action filed against OneMain Financial for using robo-calls in violation of the TCPA.
Do I really need to pay mortgage insurance? ›
Mortgage insurance lowers the risk to the lender of making a loan to you, so you can qualify for a loan that you might not otherwise be able to get. Typically, borrowers making a down payment of less than 20 percent of the purchase price of the home need to pay for mortgage insurance.
How much does mortgage insurance add to your payment? ›
But in general, the cost of private mortgage insurance, or PMI, is about 0.5 to 1.5% of the loan amount per year. This annual premium is broken into monthly installments, which are added to your monthly mortgage payment. So a $300,000 loan would cost around $1,500 to $4,500 annually — or $125 to $375 per month.
Do you get mortgage insurance back? ›
If the mortgage insurance was financed at the time of origination and is canceled prior to its maturity you may be entitled to a refund if the refundable option was chosen at the time of origination. However, if there was no refund/limited option, this would negate any option for a refund.
