Mortgage Insurance - Mortgage Loan Insurance

Mortgage insurance is a fee you pay on a monthly basis (except for VA loans) when you have less than a 20% equity position in the property when you purchase it. In other words, if you put less than 20% down you will be required to pay a monthly mortgage insurance fee. This is because the loan is considered a higher risk than one where the buyer has put more money down. A private mortgage insurance company collects this monthly premium, and if you default on the loan they make up the difference to the mortgage lender.

The rate at which you are assessed this monthly mortgage insurance premium does depend on how much you put down. On FHA loans there is also an additional "up front" mortgage insurance premium (MIP) equivalent to 2.25% of the loan amount. This amount in usually financed into the loan, but an FHA buyer who puts down 3% and finances the 2.25% MIP has a net equity position of .75%. In addition FHA also requires a monthly mortgage insurance premium. On VA loans the VA buyer usually pays just a one-time up front VA funding fee (also usually financed into the loan) and no monthly fee. It is equivalent to 2% of the loan amount for a first time VA buyer or 3% for a repeat VA buyer.

*Note* on conventional loans once you have reached a higher equity position, due to either normal appreciation or by paying extra amounts on the principal, you can petition to have the monthly mortgage insurance premium removed. FHA rarely allows the buyer to remove the mortgage insurance premium no matter how much equity the buyer has achieved in the property.