Jane Dotson
Mortgage insurance is an insurance policy that protects the lender or loan provider in the event that the borrower defaults on their payments. In the US, mortgage insurance is typically required on Federal Housing Administration (FHA) loans and U.S. Department of Agriculture (USDA) loans. The insurance can be paid upfront or as a monthly premium included in the borrower's monthly payment. While the US government does not directly provide mortgage insurance, it does mandate that borrowers who take out certain types of loans, such as FHA and USDA loans, purchase mortgage insurance to protect the lender.
| Characteristics | Values |
|---|---|
| Who does mortgage insurance protect? | The lender or titleholder |
| Who needs to pay for mortgage insurance? | The borrower |
| When is mortgage insurance required? | When the down payment is less than 20% of the purchase price of the home |
| What types of mortgage insurance are there? | Private mortgage insurance (PMI), qualified mortgage insurance premium (MIP), mortgage title insurance |
| How much does PMI cost? | Between 1% and 3% of the home's purchase price |
| How is PMI paid? | Monthly, included in the monthly mortgage payment, or in one lump sum at the start of the loan |
| Can I avoid paying PMI? | Yes, if you make a down payment of at least 20% of the home's purchase price |
| Can I cancel PMI? | Yes, under certain circumstances |
| Do FHA loans require mortgage insurance? | Yes |
| Do USDA loans require mortgage insurance? | No, but they have borrower-paid fees to protect lenders |
| Do VA loans require mortgage insurance? | No, the VA guarantee replaces mortgage insurance |
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What You'll Learn
FHA mortgage insurance
Mortgage insurance is a policy that protects lenders against losses that result from defaults on home mortgages. In the US, the government provides mortgage insurance in the form of Federal Housing Administration (FHA)-backed mortgages.
While FHA mortgage insurance was previously tax-deductible, it is no longer the case as of 2025. If you refinance your FHA loan, you may be eligible for a partial refund of your upfront MIP within three years of taking out the original loan.
To avoid or mitigate FHA mortgage insurance, borrowers can explore down payment assistance programs, obtain a USDA loan if eligible, or refinance into a conventional loan without private mortgage insurance (PMI) later on.
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USDA loans
The USDA also provides direct and guaranteed loans to beginning farmers and ranchers who cannot obtain financing from commercial credit sources. These loans can be used to purchase land, livestock, equipment, or make farm improvements.
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VA loans
The US government does not directly provide mortgage insurance, but it does facilitate mortgage insurance through the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA).
To be eligible for a VA loan, you must have satisfactory credit, sufficient income to meet the expected monthly obligations, and a valid Certificate of Eligibility (COE). Length of service, duty status, and character of service determine eligibility for specific home loan benefits. Eligibility includes National Guard members with at least 90 days of active service, including at least 30 consecutive days under Title 32, Sections 316, 502, 503, 504, or 505.
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Private mortgage insurance (PMI)
PMI is arranged by the lender and provided by private insurance companies. It protects the lender against losses caused by borrowers failing to make loan payments. If a borrower falls behind on their mortgage payments, PMI does not protect them, and they can still lose their home through foreclosure.
PMI can be paid in different ways. Most PMI is paid monthly, with little or no initial payment required at closing. However, sometimes PMI is paid with a one-time upfront premium at closing, or with a combination of upfront and monthly payments.
Under certain circumstances, borrowers can request to cancel their PMI. Federal law dictates that lenders must automatically end PMI when the loan-to-value (LTV) ratio drops to 78%, or when the borrower is one month past the midpoint of their loan term. Borrowers can also request an earlier cancellation by having their home reappraised to prove they have at least 20% equity in their home.
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Qualified mortgage insurance premium (MIP)
Mortgage insurance is an insurance policy that protects the lender or titleholder if the borrower defaults on payments, passes away, or is otherwise unable to meet the contractual obligations of the mortgage. Mortgage insurance can refer to private mortgage insurance (PMI), qualified mortgage insurance premium (MIP) insurance, or mortgage title insurance.
A mortgage insurance premium (MIP) is a type of insurance applied to mortgage loans insured by the Federal Housing Administration (FHA), also known as an FHA loan. These FHA loans, provided by FHA-approved lenders, are popular options for homebuyers who may not have the financial means to make large down payments or meet high credit requirements for a conventional mortgage. FHA mortgage insurance includes both an upfront cost, paid as part of the closing costs, and a monthly cost, included in the monthly payment. The upfront premium is often paid as part of closing costs, but it can also generally be rolled into the loan cost and paid monthly if the borrower doesn't have the cash to pay it all upfront. The annual premium is calculated yearly, then divided by 12 and included in a borrower's monthly mortgage payment.
MIP is essentially a type of insurance that protects the lender if the borrower defaults on the FHA loan. It's required because the FHA allows approved lenders to provide lower down payment requirements and more flexible credit qualifying requirements compared to most conventional loans. FHA-backed lenders use MIPs to protect themselves against higher-risk borrowers who are more likely to default on loans. Since FHA loans come with a down payment as low as 3.5% and a credit score as low as 500, default is a key concern.
MIP has two parts: an upfront premium and an annual premium. The upfront premium is typically 1.75% of the loan amount due at the loan closing. However, the borrower can embed the upfront premium into the loan balance, paying for it via the monthly payments. The annual premium is calculated yearly and then divided by 12 and paid off monthly. Typically, it's rolled into the monthly mortgage payment, so there's no need to keep track of a separate payment.
Whether a borrower can remove the annual MIP from their FHA-backed loan depends on a few factors: the origination date of the loan, the LTV ratio, the down payment amount, and the mortgage lender's policies. For loans originated after June 3, 2013, if you made a down payment of less than 10% of the home's value at loan origination, you must pay the MIP for the life of the loan. The only way to remove the qualified mortgage insurance (MIP) on an FHA loan is to refinance it into a non-FHA product.
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Frequently asked questions
Mortgage insurance is an insurance policy that protects the lender or titleholder in case the borrower defaults on the loan.
The US government does not directly provide mortgage insurance. However, it does back certain loans that require mortgage insurance, such as Federal Housing Administration (FHA) loans and USDA loans.
FHA mortgage insurance includes both upfront and monthly costs. The upfront cost is paid as part of the closing costs, while the monthly cost is included in the monthly payment. Borrowers can choose to roll the upfront fee into their mortgage, but this increases the overall cost of the loan.
Yes, USDA loans and VA loans do not require mortgage insurance. However, they have borrower-paid fees to protect lenders. For conventional loans, if you make a down payment of at least 20% of the home's purchase price, you may not need to pay for private mortgage insurance (PMI).
The cost of mortgage insurance varies depending on the loan type and down payment amount. Typically, you can expect to pay between 1% and 3% of your home's purchase price.
