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LendingTree is compensated by companies on this site and this compensation may impact how and where offers appear on this site (such as the order). LendingTree does not include all lenders, savings products, or loan options available in the marketplace.

Mortgage Insurance: How It Works and How Much It Costs

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Content was accurate at the time of publication.

Mortgage insurance protects your lender if you can’t make your monthly payments. You’ll typically pay mortgage insurance premiums if you can’t make a 20% down payment on a conventional loan, or if you only qualify for government-backed home loan programs. Understanding how mortgage insurance works may help you avoid or reduce the cost.

Mortgage insurance provides your lender with financial protection against losses if you’re unable to pay your mortgage. It’s typically required on a conventional loan if you make less than a 20% down payment, and is called private mortgage insurance (PMI). The “private” means the insurance is provided by private companies, and not insured by the government.

You’ll pay two types of mortgage insurance on a loan backed by the Federal Housing Administration (FHA loan), regardless of your down payment amount. The first is an upfront mortgage insurance premium (UFMIP), which is charged as a lump sum and typically financed into your loan balance. The second is the annual mortgage insurance premium (MIP); this is charged yearly, divided by 12 and added to your monthly payment.

You’ll pay an average of $30 to $70 per month in PMI premiums for every $100,000 you borrow on a conventional loan. The charge for upfront FHA mortgage insurance is generally 1.75% of your loan amount. The annual MIP ranges between 0.15% and 0.75% of your loan amount. The premium is divided by 12 and added to your monthly payment.

The table below gives you a side-by-side look at the cost of different types of mortgage insurance you might pay for FHA and conventional mortgages, and the factors that impact your premiums:

Home loan programType of mortgage insurance requiredCost of mortgage insuranceFactors that affect your premium
ConventionalPrivate mortgage insurance (PMI)$30 to $70 per month for every $100,000 borrowedCredit score
Loan-to-value (LTV) ratio
Property type
Number of borrowers
Debt-to-income (DTI) ratio
Loan term
Fixed rate vs. adjustable rate
Loan purpose
FHAUpfront mortgage insurance premium (UFMIP)
Annual mortgage insurance premium (MIP)
1.75% upfront for most loans
0.15% to 0.75% annual MIP
LTV ratio
Loan purpose
Property location
Loan term
Loan amount

How do I pay for mortgage insurance?

Annual FHA MIP must be paid as part of your monthly mortgage payment. However, you do have some flexibility when it comes to paying upfront FHA MIP and conventional PMI.

There are four ways to pay for PMI:

  1. Borrower paid. Borrower paid mortgage insurance (BPMI) is the most popular option, because you can divide up the cost and add it to your monthly payment.
  2. Single premium. Also called “upfront PMI,” you can pay your entire premium in a lump sum and avoid paying it as a monthly cost. One tip: If a seller offers to pay a percentage of your closing costs, consider using the credit to pay the single premium insurance.
  3. Split PMI. PMI companies may offer “mix-and-match” choices that allow you to split part of the PMI premium into a monthly payment while you pay the other portion in a lump sum at closing.
  4. Lender paid. Lenders may offer to pay mortgage insurance on your behalf, if you’re willing to accept a higher mortgage rate for the life of the loan.

There are two ways to pay for upfront FHA MIP:

  1. Finance it into your loan amount. This is the most common way to pay the upfront FHA mortgage insurance fee.
  2. Pay it in cash. You can either pay it from your own funds, get a gift for the cost or ask the seller to pay for it.

Although PMI and MIP essentially do the same thing — reimburse the lender for financial losses if they have to foreclose on your home — different factors may affect the cost of one over the other.

Credit score

PMI companies are on the hook to pay claims if you default on a loan, and they charge premiums based on how likely you are to default. A low down payment and credit score will result in a much higher PMI premium.

The percentages paid for both the upfront and annual MIP are the same regardless of how high or low your credit scores are, making FHA loans a more cost-effective choice for homebuyers with rocky credit histories.

Debt-to-income (DTI) ratio

You’ll pay a higher PMI premium on a conventional loan if your DTI ratio is over 43%. There is no markup for FHA loans based on your DTI ratio.

Property type

Conventional PMI is more expensive if you’re buying a manufactured home, condo or a multifamily home, but won’t affect FHA mortgage insurance premiums.

Number of borrowers

You’ll pay slightly lower PMI premiums if two people are on the loan versus one, while FHA mortgage insurance premiums are the same no matter how many people apply.

Loan-to-value (LTV) ratio

Lenders divide your loan balance by the price of your home to determine your loan-to-value (LTV) ratio — the higher it is, the more mortgage insurance you pay. With a down payment of 20% or more, you won’t pay any PMI. FHA mortgage insurance is required regardless of your down payment or LTV ratio.

PMI is a better fit if:FHA MIP is a better fit if:
You have a high credit score and a large down paymentYou have a low credit score and a small down payment
You have a low DTI ratioYou have a high DTI ratio
You want to get rid of it when your home value increasesYou can’t qualify for a conventional loan
You’re borrowing with someone elseYou’re borrowing on your own

If you’re eligible for a loan backed by the U.S. Department of Veterans Affairs (VA) or the U.S. Department of Agriculture (USDA loan), you won’t pay for mortgage insurance — and may be eligible for no-down-payment financing. There’s a catch: These government-backed programs require guarantee fees instead, which means they’re “guaranteed” to be paid a portion of the loan balance if a borrower defaults on a VA or USDA mortgage.

Like mortgage insurance, you’re required to pay the fees to protect lenders — and in the case of VA loans, taxpayers — from losses in the event of default.

The table below shows the type and cost of these guarantee fees for each program.

Home loan programFee type and costFactors that affect the guarantee fee amount
VA0.5% to 3.6% funding for most loansDown payment amount
Loan purpose
Number of times the benefits have been used
Service-related disability status
USDA1% upfront guarantee fee
0.35% annual guarantee fee

VA funding fee

Most VA borrowers must pay a VA funding fee that ranges from 0.5% to 3.6% of their loan amount and is charged to offset the taxpayer burden related to VA loans. Military veterans with a service-related disability may qualify for a fee exemption.

The fee is typically financed into the loan amount, but can be paid in cash from your funds or by the home seller.


Things you should know

The VA provides an extra guarantee in the form of your VA entitlement, which is basically a promise from the VA to you that your lender will be reimbursed for a portion of your loan if you can’t repay your mortgage.

USDA guarantee fee

USDA loans are also “guaranteed” by the government, but they work more like FHA mortgage insurance. Designed for low- to moderate-income borrowers who want to purchase homes in rural areas, USDA loans require two types of guarantee fees.

  1. The first is a lump-sum “upfront guarantee fee” based on a percentage of your loan amount that’s usually rolled into your loan amount.
  2. The other is an annual guarantee fee that’s divided by 12 and added to the monthly mortgage payment.

There are ways to completely eliminate different types of mortgage insurance.

Private mortgage insurance

  • Make at least a 20% down payment. You can get a mortgage without PMI by making a down payment of at least 20%.
  • Take out a piggyback loan. Rather than paying mortgage insurance, you can take out a home equity loan or home equity line of credit (HELOC) and “piggyback” it on top of your first mortgage. In most cases, you’ll need a 10% down payment for the 80-10-10 loan, the most common piggyback option. Here’s how it works:
    • Borrow 80% of the home’s value as a first mortgage
    • Borrow 10% of the home’s value as a home equity loan or HELOC
    • Make a 10% down payment toward your home purchase

FHA mortgage insurance

  • The only way to avoid FHA MIP and UFMIP is to choose a different loan program.

VA funding fee

USDA guarantee fee

  • The only way to avoid USDA guarantee fees is to choose a different loan program — there is no way to reduce the cost of them.


  • Boost your credit scores. Your credit score plays a big role in your PMI costs; keeping low credit card balances and paying on time could mean big savings.
  • Ask the seller to pay a lump-sum PMI premium. Consider using a seller concession to buy out your PMI costs with lump-sum PMI. You might end up needing cash for the other costs, but you’d have a lower monthly mortgage payment.
  • Choose lender-paid mortgage insurance. Taking a higher interest rate so your lender pays your mortgage insurance upfront may keep your out-of-pocket costs low at the closing table. However, you’re stuck with the higher rate for the life of the loan.
  • Check your home equity regularly. You can ask to cancel PMI once you’ve reached 20% equity. You might have to pay for a home appraisal, but it’s worth it if home prices are booming in your neighborhood.
  • Buy a single-family home. You’ll get the lowest premium for a single-family home; condos, co-ops, multifamily and manufactured homes cost more.
  • Keep your DTI ratio low. A DTI ratio higher than 43% usually comes with a higher PMI premium.
  • Choose a shorter loan term and a fixed interest rate. You’ll shell out more PMI dollars for a term of 20 years or longer, or if you get an adjustable-rate mortgage (ARM).


  • Make at least a 10% down payment. The annual MIP is slightly lower with at least a 10% down payment, and it’ll drop off your loan after 11 years.
  • Choose a shorter loan term. If you can afford the payments of a 15-year mortgage term, you can reduce your monthly MIP premium.
  • Refinance to a conventional loan as soon as you can. If you chose an FHA loan because your credit scores were low, refinance your FHA loan to a conventional mortgage as soon as your credit is in better shape to get rid of PMI costs.
  • Ask the seller to pay the UFMIP. The FHA permits sellers to pay up to 6% of your sales price to cover FHA closing costs, including your UFMIP.
  • Do an FHA streamline refinance. If you currently have an FHA loan, the FHA streamline refinance allows you to refi with reduced MIP costs. An added bonus: You don’t need income documents or an appraisal.

VA funding fees

  • Make a bigger down payment. A down payment of 5% to 10% may save you thousands of dollars on the funding fee.
  • Ask the seller to pay the funding fee. VA guidelines allow sellers to pay up to 4% of the sales price toward the buyer’s VA closing costs.
  • Save your VA benefits for your dream home. The VA funding fee is 2.3% of your loan amount the first time you use it, compared to 3.6% for every use thereafter. On a $300,000 loan, for example, you’ll save an extra $3,900 on the fee if you use your VA eligibility for the first time.

When you default on a mortgage and the lender forecloses on your home, they incur legal fees to process the foreclosure and expenses associated with remarketing and reselling the home. 

Because of mortgage insurance:

YOU CAN BUY A HOME WITH A LOW DOWN PAYMENT. Lenders wouldn’t be willing to take the risk on low- or no-down-payment loans without mortgage insurance. In many cases, that means you’d need at least a 20% down payment to buy a home, which would limit the number of people who could afford to purchase homes.

YOU CAN QUALIFY WITH LOWER CREDIT SCORES.Mortgage insurance allows lenders to make no- and low-down-payment loans to borrowers with scores below the 620 conventional minimum, which opens up more buying opportunities for credit-challenged homebuyers. 

There are three major differences between mortgage insurance and homeowners insurance: 

  1. Mortgage insurance only protects the lender, not you 
  2. Mortgage insurance isn’t required with 20% equity in your home on a conventional loan
  3. Mortgage insurance is chosen by your lender or by the loan program you choose — you can’t shop for it

You’ll pay PMI until your loan is paid down to 78% of your home’s original value. However, you may be able to remove PMI if you can prove you’ve built up 20% equity since purchasing your home.

Yes, if you are buying a home with less than a 20% down payment. However, you may be able to avoid it with a piggyback loan.

Yes. The premium can be added to your interest rate if you choose “lender-paid mortgage insurance” (LPMI). The lender pays PMI on your behalf and in exchange you accept a higher interest rate.

No. Title insurance protects you from claims against your home — like tax liens or judgments — from prior owners. Most lenders require you to purchase a “lender’s title policy” if you’re getting a mortgage.

More commonly called mortgage life insurance, some companies may offer this type of policy that pays off your mortgage if you unexpectedly die before your loan balance is paid in full. It’s an optional insurance product and is never required by lenders.