What is mortgage insurance and how does it work?
Short answer
Mortgage insurance protects the lender, not the borrower, if you fall behind and the home sale does not cover the balance. It is typically required on a conventional loan when the down payment is under 20 percent, and it is typically required on FHA and USDA loans. It increases the cost of the loan and may be paid monthly, at closing, or both.
Full explanation
lowers the lender's risk so you may qualify for a loan you might not otherwise get, and it increases the cost of that loan. It protects the lender, not you. If you fall behind, your credit can suffer and you can lose the home through foreclosure. If a foreclosure sale does not cover the balance, mortgage insurance can make up the difference for the loan holder.
Borrowers who put down less than 20 percent of the purchase price typically pay mortgage insurance. It is also typically required on FHA and USDA loans. Fannie Mae states the same split: government insurance on government loans such as FHA and USDA, and on conventional loans with less than 20 percent down. If required, the cost may be in the monthly payment, in closing costs, or both.
On a conventional loan, the lender may arrange private mortgage insurance. PMI charges vary by down payment and credit score. Much PMI is paid monthly. Under certain circumstances you can cancel PMI. FHA insurance is paid to FHA and includes an upfront amount and a monthly amount; the frozen sources do not authorize stating current FHA rates or FHA cancellation rules. USDA insurance is also paid at closing and monthly. How you pay depends on the loan type.