Mortgage insurance takes many forms. It should not be confused with mortgage life insurance that pays the balance of the mortgage in the event of the borrower’s death, and it should not be confused with homeowner or hazard insurance that pays for physical losses to the property and contents. Mortgage insurance protects the lender against a portion of a loss in the event of a defaulted loan.

Private Mortgage Insurance (PMI) and Mortgage Insurance (MI) are the same and refer to the insurance of conventional loans. Mortgage Insurance Premium (MIP) refers to the premium dollars for insuring an FHA loan. The VA Funding Fee is a form of insurance (though technically it’s a guarantee) for Veteran’s Administration guaranteed loans.

Conventional Loans
Traditionally, borrowers made a 20% down payment when purchasing a home. That down payment was enough to provide the lender with sufficient equity in the event the borrowers defaulted on the loan. The lender would foreclose and the loss would be minimized by that equity.

However, since many people were not able to make a 20% down payment, lenders developed an alternate means of providing home ownership with a lower down payment: mortgage insurance. The mortgage insurer protected the lender against a portion of the loss in a defaulted mortgage, thereby reducing the lender’s risk to an acceptable level. There are several private mortgage insurers in the industry. Although the lender usually coordinates the process of obtaining mortgage insurance, the borrower may select the mortgage insurer if desired. Mortgage insurance rates are regulated, however, so the lender's choice of an insurer should not have any impact on the premium.

In most cases today, a 20% down payment, or secondary financing negates the need for mortgage insurance. Smaller down payments typically require increased (and more expensive) mortgage insurance. However, there are many alternative programs that eliminate the need for mortgage insurance, even with very small down payments. These “No Mortgage Insurance” programs are usually a financially superior decision. Contact a Loan Officer for details.

FHA Loans
The Federal Housing Administration provides loans to borrowers with very low down payments. The concept is similar to conventional loans, with a few exceptions. The insurance dollars are paid to the FHA. An up-front premium is due at loan closing, and the premium may be included in the loan amount.  A monthly insurance payment is also included in the loan payment. The amount of the up-front and monthly premium varies with the term of the loan and the loan-to-value ratio. Contact a Loan Officer for specific details about a loan that interests you.

VA Loans
The Veteran’s Administration makes available loans to qualified veterans with no down payment. A Funding Fee is paid at the time of closing and the fee may be included in the loan amount. There is no monthly insurance on a VA loan. The amount of the funding fee is set by the Veteran’s Administration and varies from 0-3%. If you think you qualify for a VA loan, contact a Loan Officer for additional information.