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Mortgage Insurance When you buy a home, the lender requires you to protect your financial investment with homeowner's insurance. Depending on the type of loan you are requesting, you might also be expected to pay mortgage insurance. This protects the lender if you default on the loan. Mortgage insurance is a cost you pay that benefits the lender. It encourages lenders to take the risk of accepting lower down payments. The lender knows that if the buyer defaults, the loan will eventually be paid as part of an insurance settlement. FHA Mortgage Insurance Mortgage insurance is required on all FHA loans regardless of the loan to value ratio (the percentage you are putting down on the home). When you finance a single-family home with a 30 year FHA-insured loan, you are required to pay 2.25% of the loan amount to a special FHA mortgage insurance fund called the Mortgage Insurance Premium (MIP) fund. The MIP may be paid in cash at the time of closing or it can be added to your loan and amortized over the life of the loan. It is a portion of your monthly payment. There is also an additional monthly mortgage insurance charge of approximately 0.5% (annualized) per month. FHA becomes the insuring agency on your home. At closing HUD collects the FHA mortgage insurance premium from your lender. A check for the total amount is send directly to FHA in Washington, D.C. VA Funding Fee The VA has a similar program as the FHA Mortgage Insurance, however, it is called a Funding Fee. For those using their VA eligibility for the first time, the Funding Fee is: No down payment from the buyer = 2% Funding Fee 5-10% down payment from the buyer = 1.5% Funding Fee 11%+ down payment from the buyer = 1.25% Funding Fee For those using their VA eligibility for the second time, the Funding Fee is: No down payment from the buyer = 3% Funding Fee 5-10% down payment from the buyer = 1.5% Funding Fee 11%+ down payment from the buyer = 1.25% Funding Fee Government regulations are always subject to change. Be sure to ask your lender to confirm both the FHA and VA amounts. Conventional Mortgage Insurance If a buyer's down payment is 20% or more, a conventional lender does not typically require mortgage insurance of any type. If you are putting less than 20% down, check with your lender for current and competitive rates. Print This Page                                                                                                                                             Return to Top of Page Buyers Best Choice is a true Personal Service Real Estate Agency located in Colorado. Web Design by Amaasing Designs