Mortgage Insurance 101: What You Need to Know

Mortgage insurance is insurance that lenders take out and borrowers pay for, to help offset losses that lenders incur.

There are two types of mortgage insurance. The first covers conventional mortgages. These mortgages use guidelines from Fannie Mae or Freddie Mac.

With this type of loan, if you put down less than 20% of the purchase price, you’ll be required to pay for mortgage insurance. In the case of a refinance, if you have less than 20% equity (market value minus financed amount), you will also pay mortgage insurance.

The cost of mortgage insurance is based on the amount of equity you have in the property and other factors, such as credit scores.

At some point in the life of the loan, you will be able to remove this mortgage insurance. This typically occurs once you have built up more than 20% equity.

The second type covers FHA loans. With FHA loans, there are actually two types of mortgage insurance. One of them you pay as a one-time fee.

This is called the upfront premium and can either be paid at closing or financed into your loan. As of early 2018, this premium was 1.75% of the amount being financed.

The other type of FHA mortgage insurance is called an annual premium. It is paid on a monthly basis. Unlike with conventional loans, this premium will likely remain on the loan until the loan is paid off through the sale of the property or a refinance.

Contact your mortgage professional for more details.

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