Mortgage insurance protects the lender if you default on your loan. But not all mortgage insurance is the same. Understanding the differences can help you choose the right loan program.
PMI (Private Mortgage Insurance)
Required on conventional loans when your down payment is less than 20%. PMI can be canceled once you reach 20% equity. It's typically paid monthly as part of your mortgage payment.
MIP (Mortgage Insurance Premium)
Required on FHA loans regardless of down payment amount. MIP includes an upfront premium (typically 1.75% of the loan amount) plus an annual premium paid monthly. For most FHA loans, MIP lasts the life of the loan unless you refinance.
VA Funding Fee
VA loans don't require monthly mortgage insurance, but they do have a one-time funding fee (which can be rolled into the loan). This fee ranges from 0.5% to 3.3% depending on your down payment and whether it's your first VA loan.
The best way to avoid mortgage insurance costs? A 20% down payment on conventional loans, or consider VA loans if you're eligible.