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What is Mortgage Insurance? Why It Could Affect Your Bottom Line

Most homebuyers hope to avoid mortgage insurance.

This is what lenders typically charge buyers who put down less than 20% of the purchase price of the home. It protects lenders in case the buyer stops paying their mortgage. 

Buyers generally must pay the fee every month, rolled into their mortgage payments.

Those who used a Conventional loan typically pay private mortgage insurance, aka PMI, until they have about 20% equity in their homes. This can be due to a combination of paying down the mortgage balance plus home appreciation boosting the value of their property.

“It’s based on several factors, such as the amount of money that you’re putting down on the home, the [number] of borrowers that are on the loan, … your credit score, and sometimes even how much debt you’re carrying,” said Lisa Daniels, director of sales training at New American Funding.

Recent buyers who put down at least 10% with a Federal Housing Administration (FHA) loan, generally must pay a mortgage insurance premium for at least 11 years even if they own more than 20% of their home value.

Those whose down payment was less than 10% generally can’t have the insurance removed unless they refinance to a new loan.

“For a government loan, the amount you’ll pay is more dependent on [how much] you put down than your credit score,” said Daniels.

Lisa Daniels NMLS # 37860