Mortgage Insurance



Mortgage insurance protects the lender in the event that a borrower defaults on a loan. As such, mortgage insurance allows a borrower to purchase or refinance a home without having 20% down payment or equity. Without mortgage insurance, many people would never be able to purchase a home because of the large down payment requirements. Different loan programs have different types of mortgage insurance with different names such as guaranty fees (USDA) or funding fees (VA), but in essence, they all serve the same purpose which is to protect the lender and make home loan financing more readily available to the consumer.

Conventional Loans: Many Private Mortgage Insurance Options

Conventional loans are not backed by the federal government and as such the mortgage insurance provided comes from private mortgage insurance companies. This type of mortgage insurance is referred to as PMI or private mortgage insurance. Private mortgage insurance companies are for-profit entities that offer their services to lenders and homeowners. They offer a wide variety of mortgage insurance options including one-time fees, monthly fees, or a combination of monthly and upfront fees. Unlike other types of loans, conventional mortgage insurance rates vary widely based on a consumers credit score, loan-to-value, property type and other factors. A well-educated lender can help you understand the costs and benefits of the different private mortgage insurance options.

FHA Loans: HUD’s Upfront Mortgage Insurance & Monthly Mortgage Insurance

FHA loans are insured by the Department of Housing and Urban Development (HUD) and as such the mortgage insurance paid by the consumer goes to the Federal Government. In the event that the borrower defaults on their mortgage, HUD will pay out claims to help the lender absorb part of the loss. FHA charges a combination of an upfront mortgage insurance premium (which is financed into the loan) and a monthly mortgage insurance premium that is required for the life of the loan.

Rural Development Loans: USDA’s Upfront & Monthly Guaranty Fee

Rural Development (RD) loans are insured by the United States Department of Agriculture (USDA) and as such the guaranty fee paid by the consumer goes to the Federal Government. In the event that the borrower defaults on their mortgage, USDA will pay out claims to help the lender absorb part of the loss. USDA charges a combination of an upfront mortgage insurance premium (which is financed into the loan) and a monthly mortgage insurance premium.

VA Loans: Veteran Administrations’s Funding Fee

The VA Funding Fee is paid directly to the Federal Government to help ensure that the program keeps running for future generations. The amount of the funding fee varies based on a number of factors. For example, first time users of the VA loan program will typically pay a funding fee in the amount of 2.15% of the loan amount. Veterans who have used their benefits more than once pay 3.3 percent. While Veterans have the option to pay the funding fee upfront, most choose the more attractive option of financing the funding fee as part of their overall loan amount. Veterans with service-related disabilities often don’t pay a funding fee at all.


To learn more about the costs of mortgage insurance, call one of our Home Loan Specialists at (208) 388-0500 or click the button below to apply now and obtain a detailed analysis of your loan options.
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