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Mortgage Insurance

When you need it, and Why

When borrowers make a down payment of less than 20 percent of the purchase price of the home, or when they’re choosing a government backed loan, they will need to pay for mortgage insurance. Mortgage insurance lowers the risk to the lender of making a loan to you, so you can qualify for a loan that you might not otherwise be able to get. But, it also increases the cost of your loan.

If you’re required to pay mortgage insurance, it will be included in your total monthly payment that you make to your lender, your costs at closing, or both. Keep in mind, mortgage insurance, no matter what kind, protects the lender — not you — in the event that you fall behind on your payments. If you fall behind, your credit score will suffer and you can lose your home through foreclosure.

There are several loan options available to borrowers with low down payments. Depending on what kind of loan you get, you’ll pay for mortgage insurance in different ways:

Private Mortgage Insurance

If you get a conventional loan with a down payment of less than 20%, your lender will arrange for mortgage insurance with a private company. Private mortgage insurance (PMI) fees vary, depending on the size of the down payment and your credit score, from around 0.3% to about 1.5% of the original loan amount per year. Most PMI is paid monthly, with little or no initial payment required at closing.

Your lender must automatically cancel PMI when your outstanding loan balance drops to 78% of the home’s original value, but depending on the size of your initial down payment, it could take several years before you reach this threshold.

FHA Mortgage Insurance

If you get an FHA loan, mortgage insurance premiums are paid to the Federal Housing Administration (FHA). FHA mortgage insurance is required for all FHA loans. It costs the same no matter your credit score, with only a slight increase in price for down payments less than five percent. FHA mortgage insurance includes both an upfront cost, paid as part of your closing costs, and a monthly cost, included in your monthly payment.

You’re also allowed to roll the upfront fee into your mortgage instead of paying it out of pocket, but if you do this, your loan amount and the overall cost of your loan will increase. Recent FHA-insured loans require payment of mortgage insurance premiums for the life of the loan, so FHA mortgage insurance premiums can’t be canceled; instead, you’d have to refinance the loan and switch to a Conventional mortgage.

VA Funding Fee

If you get a VA loan, the Department of Veterans’ Affairs (VA) guarantee replaces mortgage insurance, but functions similarly. With VA loans, there is no monthly mortgage insurance premium. However, you will pay an upfront “funding fee.” The amount of that fee varies based on your type of military service, your down payment amount, your disability status, whether you’re buying a home or refinancing, and whether this is your first VA loan, or you’ve had a VA loan previously.

Like with FHA loans, you can roll the upfront fee into your mortgage instead of paying it out of pocket, but doing so increases both your loan amount and your overall costs.

Additional Resources:
Introduction to Loan options
Types of Home Loans
Getting Pre-Qualified for a Home Loan

Information provided is deemed reliable but not guaranteed. Speak to a mortgage broker to learn more about which program is right for you. Additional resources are available from the Consumer Finance Protection Bureau to help you have the information you need to make informed financial decisions.

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"As Real Estate Brokers in Hawaii for more than 40 years, we know how important a good agent is when looking to buy property when you can’t be there. After seeing a property listed by Russ, we called and talked with him. He came across as very knowledgeable, competent, helpful, and friendly so we asked Russ to send us new listings for the type of property we were looking for, which he did. When a property came up that we liked we contacted Russ and had him arrange to show the place to our son who lives in Green Valley. Everything looked great so we had Russ write and present our offer, which was accepted. Russ followed through with everything required and kept us up to date each step through escrow and the final closing. We are very happy with how Russ treated us and made sure everything got done when it needed to be done. Every step of this purchase was handled by phone and email. We recommend Russ to everyone looking for a good agent to represent them in Real Estate."
- J.H., Anchorage AK
"Russ helped us make our retirement dream a reality. We met Russ in July of 2018 when we made our first house hunting trip to Green Valley, AZ. He listened carefully to what we were looking for in a home and presented us with a list of houses that met our criteria. He helped us through two failed sales on our ou-of-state home, and when our home sold after five months on the market Russ was ready to help us with our home purchase in AZ. He stayed on top of all the important dates, provided us with a wealth of information about the area and links to all the required utilities. Moving is very stressful but Russ took a lot of the stress away with his commitment to quality customer service."
- C. G., Green Valley AZ
"Or home buying process took about 5 months and Russ was there for us the whole time. Never pushy always ready with advice and options. When we finally found the perfect place he was always on top of every detail and kept us informed and prepared for each step. Russ provides an extraordinary real estate experience for his clients. Professional, knowledgeable and ready to answer all our questions honestly and quickly. He was a joy to work with."
- D.H., Green Valley AZ
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Russ Fortuno, Associate Broker

I'm a Southern Arizona native and year-round Green Valley resident. Whether you’re buying or selling a home in the Green Valley or Sahuarita area, you’ll experience unsurpassed service and professionalism at all stages of your real estate transaction. I welcome the opportunity to assist in your next home sale or purchase.
Meet Russ

Tierra Antigua Realty

18745 S. I-19 Frontage Rd., Ste. A105
Green Valley, AZ 85614
(520) 333-0446
Contact Russ

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