Jan 16, 2027 · By Oanh Nguyen · Broker & Loan Officer · Home Loans
If you're buying a home without a large down payment, you'll probably hear about mortgage insurance. It's one of the most misunderstood parts of a home loan.
Many buyers confuse it with homeowners insurance. Others assume it lasts forever, or that it's always a bad thing. In reality, mortgage insurance is a tool that helps many buyers purchase a home sooner than they otherwise could. But it adds cost, and the rules depend on the type of loan.
In this post, I'll explain what mortgage insurance is, how it differs from homeowners insurance, when it may apply, what affects its cost, how programs differ, cancellation rules and the questions to ask your lender.
This is general education, not a loan offer or commitment to lend. Loan programs, guidelines and eligibility change and depend on lender review and approval.
What Mortgage Insurance Is
Mortgage insurance protects the lender, not you, if a borrower stops making payments. Because it reduces the lender's risk, it can make it possible for lenders to offer loans to buyers with smaller down payments.
You pay for it, but it doesn't protect you or your home.
Mortgage Insurance vs. Homeowners Insurance
| Mortgage insurance | Homeowners insurance | |
|---|---|---|
| Protects | The lender | You and your property |
| Covers | Lender losses if the loan defaults | Damage to the home, belongings and liability |
| Required when | Depends on the loan type and down payment | Usually required by lenders for all loans |
| Can end | Often, depending on the program | Needed for as long as you own the home (and required while you have a loan) |
You may pay both at the same time.
When Mortgage Insurance May Apply
It depends on your loan type.
Conventional loans: private mortgage insurance (PMI) is generally required when the down payment is below a certain level. The exact requirement depends on the loan and lender.
FHA loans: the CFPB explains that FHA mortgage insurance is required for all FHA loans, and it includes both an upfront cost, paid as part of closing costs, and a monthly cost included in your payment.
VA loans: the CFPB notes that for VA-backed loans, the VA guarantee replaces mortgage insurance and functions similarly. VA loans generally have a funding fee instead, with some exceptions. The VA explains its funding fee.
USDA loans: the CFPB describes USDA's program as similar to FHA's. USDA loans are for eligible properties in eligible areas.
My posts on conventional vs. FHA loans and VA home loans explain those programs in more detail.
What Affects the Cost?
I don't list mortgage insurance rates or costs here, because they depend on the loan and the borrower and change over time. Factors that commonly affect the cost include:
- Loan type (conventional, FHA or other).
- Down payment relative to the home's value.
- Credit score, especially for conventional PMI.
- Loan amount and term.
- Debt-to-income ratio, in some cases.
- Property type and occupancy.
- How it's paid: monthly, upfront, a combination or built into the rate, depending on the options available.
Your Loan Estimate will show mortgage insurance costs in the loan's projected payments and closing costs. The CFPB explains how to read it.
Ways Mortgage Insurance Can Be Paid
Depending on the program, options may include:
- Monthly premiums added to your payment.
- Upfront premiums paid at closing or added to the loan.
- Single-premium options for some conventional loans.
- Lender-paid mortgage insurance, where the cost is built into a higher interest rate.
Each option has trade-offs. Ask your lender to compare them for your situation.
Cancellation Rules for Conventional PMI
Federal law, the Homeowners Protection Act, sets rules for canceling PMI on many conventional loans. The CFPB summarizes the rules:
- You have the right to ask your servicer to cancel PMI on the date the principal balance of your mortgage is scheduled to fall to 80 percent of the original value of your home, or earlier if you've made extra payments that bring it there, subject to certain requirements.
- In general, your servicer must automatically end PMI on the date your principal balance is scheduled to reach 78 percent of the original value of your home, if you're current on payments.
- Your servicer must end PMI the month after you reach the midpoint of your loan's amortization schedule, if you're current, even if you haven't reached 78 percent. The midpoint is halfway through the loan's full term.
"Original value" generally means the lower of the purchase price or the appraised value at the time you bought the home. Requirements like a good payment history and no other liens may apply when you request cancellation. Ask your servicer for the details on your loan.
FHA and VA Are Different
The CFPB notes that FHA and VA loans have different requirements from conventional PMI. FHA mortgage insurance rules depend on factors like when the loan was made, the loan term and the down payment. For questions about FHA or VA mortgage insurance on your loan, the CFPB suggests contacting your servicer. HUD and the VA also publish information about their programs.
Some FHA borrowers later refinance into a different loan type to remove mortgage insurance. Whether that makes sense depends on rates, costs and your home's value at the time.
Tracking Mortgage Insurance After Closing
Mortgage insurance doesn't end on its own in every case, and when it can end, you'll want to know. After closing:
- Keep your closing documents. They show your loan type, original value and mortgage insurance details.
- Find the PMI disclosure. For conventional loans with PMI, lenders provide information about cancellation rights.
- Note key dates. Mark the date your balance is scheduled to reach 80 percent of the original value, and the date it's scheduled to reach 78 percent.
- Review your annual statements. Servicers send information about your loan, including mortgage insurance.
- Track extra payments. If you pay extra toward principal, you may reach the cancellation point sooner.
- Contact your servicer when you're close, and ask exactly what they need from you.
Mortgage Insurance and Your Home's Value
Some borrowers ask whether a rise in their home's value can help remove PMI sooner. The automatic rules described by the CFPB are based on the original value, not today's value. Some servicers and investors have their own policies on removing PMI based on a new appraisal, often with requirements about how long you've owned the home and your payment history. Ask your servicer whether this option exists for your loan.
For FHA loans, some borrowers consider refinancing into a conventional loan later. Whether that makes sense depends on rates, closing costs, your credit and your home's value at the time. Run the numbers with a lender before deciding.
Is Mortgage Insurance Worth It?
That's a personal decision. Mortgage insurance adds cost, but it can also:
- Help you buy sooner, instead of waiting years to save a larger down payment.
- Let you keep more cash for reserves, repairs or emergencies.
- Give you access to programs that fit your situation.
On the other hand:
- It increases your monthly cost or upfront costs.
- It protects the lender, not you.
Compare scenarios with your lender. I don't predict home values or tell buyers whether waiting is better, but I can help you see the costs side by side.
Comparing Scenarios
Use your lender's Loan Estimates to fill in a comparison.
| Option A | Option B | |
|---|---|---|
| Loan type | ||
| Down payment | $ | $ |
| Monthly mortgage insurance | $ | $ |
| Upfront mortgage insurance or fee | $ | $ |
| Total monthly payment | $ | $ |
| Cash to close | $ | $ |
| When mortgage insurance may end | ||
| Cash left for reserves | $ | $ |
Questions to Ask Your Lender
- Will my loan require mortgage insurance?
- What's the estimated monthly cost, and is there an upfront cost?
- What payment options are available for mortgage insurance?
- How does my credit score affect the cost?
- When could mortgage insurance end on this loan?
- How would a larger down payment change things?
- How do the options compare across loan types?
Common Mistakes
- Confusing mortgage insurance with homeowners insurance.
- Assuming it lasts forever on every loan.
- Not tracking the PMI cancellation date on a conventional loan.
- Draining all savings to avoid mortgage insurance, leaving no reserves.
- Not comparing loan types and payment options.
Key Takeaways
- Mortgage insurance protects the lender, not you.
- Whether you pay it depends on your loan type and down payment.
- FHA has its own mortgage insurance; VA uses a guarantee and funding fee.
- Conventional PMI has federal cancellation rules.
- Compare scenarios on your Loan Estimates.
A Hypothetical Example
This example is made up to show the process. It is not based on any real borrower, loan or lender.
A buyer is choosing between waiting another year to save more or buying now with a conventional loan that includes PMI. Their lender provides Loan Estimates for both scenarios, showing the monthly PMI cost and estimated payments.
The buyer decides to buy now and keep some cash in reserves. After closing, they note the scheduled date when their loan balance should reach 80 percent of the original value. A few years later, after extra principal payments, they contact their servicer to ask about canceling PMI early and follow the servicer's requirements.
Frequently Asked Questions
What is PMI?
Private mortgage insurance, often required on conventional loans with smaller down payments. It protects the lender.
Is mortgage insurance the same as homeowners insurance?
No. Homeowners insurance protects you and your home. Mortgage insurance protects the lender.
Do FHA loans have mortgage insurance?
Yes. The CFPB explains that FHA mortgage insurance is required for all FHA loans, with upfront and monthly costs.
Do VA loans have mortgage insurance?
The VA guarantee replaces mortgage insurance. VA loans generally have a funding fee, with some exceptions.
When does PMI go away?
On many conventional loans, federal rules allow you to request cancellation at 80 percent of the original value, and generally require automatic termination at 78 percent, if you're current. Ask your servicer.
Can I avoid mortgage insurance?
Sometimes, depending on the loan type and down payment. Ask your lender to compare options.
Does my credit score affect PMI?
Often yes, for conventional loans.
Can I remove FHA mortgage insurance?
FHA rules are different. Contact your servicer, and ask your lender about options.
Is mortgage insurance tax deductible?
Tax rules on mortgage insurance premiums have changed over the years. Ask your CPA about your situation.
Do jumbo loans have mortgage insurance?
It depends on the lender and loan. Some jumbo programs handle smaller down payments differently. Ask your lender.
How I Can Help
As a broker and loan officer, I help buyers compare loan options with and without mortgage insurance, explain how it's paid and how it may end, and line up Loan Estimates side by side. Loan approval always depends on lender review and approval.
The Bottom Line
Mortgage insurance protects the lender and can help you buy with a smaller down payment. Whether you pay it, how much and for how long depends on your loan type. Understand the cancellation rules for conventional PMI, compare scenarios on your Loan Estimates and keep reserves.
Wondering how mortgage insurance applies to you? Let's compare your options.
Sources
- Consumer Financial Protection Bureau, "What is mortgage insurance and how does it work?": https://www.consumerfinance.gov/ask-cfpb/what-is-mortgage-insurance-and-how-does-it-work-en-1953/
- Consumer Financial Protection Bureau, "What is private mortgage insurance?": https://www.consumerfinance.gov/ask-cfpb/what-is-private-mortgage-insurance-en-122/
- Consumer Financial Protection Bureau, "When can I remove private mortgage insurance (PMI) from my loan?": https://www.consumerfinance.gov/ask-cfpb/when-can-i-remove-private-mortgage-insurance-pmi-from-my-loan-en-202/
- Consumer Financial Protection Bureau, Loan Estimate explainer: https://www.consumerfinance.gov/owning-a-home/loan-estimate/
- U.S. Department of Housing and Urban Development, Buying a Home: https://www.hud.gov/helping-americans/buying-a-home
- U.S. Department of Veterans Affairs, VA funding fee and loan closing costs: https://www.va.gov/housing-assistance/home-loans/funding-fee-and-closing-costs/
Ask how mortgage insurance applies to you. Call or text me at 408-780-1188, or email onrealtygroup@gmail.com.
Oanh Nguyen · Broker & Loan Officer · On Realty Group, brokered by LPT Realty · BRE #02133991 · NMLS 2020335
Equal Housing Opportunity.
Loan disclosure: Oanh Nguyen, Broker | Loan Officer, On Realty Group, brokered by LPT Realty, BRE #02133991, NMLS #2020335. This post is general education, not a loan offer, rate quote or commitment to lend. Loan programs, guidelines and eligibility change and are subject to lender review and approval.
Disclaimer: This post is general information only, not an appraisal or legal, tax or financial advice; data comes from the public sources linked above, is believed reliable but not guaranteed, and can change at any time.