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Smarter in 60 - Will I need mortgage insurance

Smarter in 60 Mortgage Tips


MORTGAGES | MARCH 7, 2022 | RYAN KELLENBERGER


Many home buyers are confused about the need to add mortgage insurance—sometimes referred to as private mortgage insurance (PMI)—to their loan. The simple answer is that if you cannot make a down payment of 20 percent or more on your mortgage, you’ll likely need some form of mortgage insurance. The kind you get is dependent on the type of loan you are receiving.

Mortgage insurance protects the lender in case you default on the loan. The insurance assures the lender allowing you to qualify for a loan that you might not otherwise be able to receive. But it will increase the cost of your loan. Sometimes it is added into the monthly payment, while some lenders require it to be paid at closing.

Some mortgage loan options require mortgage insurance like government-backed Federal Housing Administration (FHA) loans, U.S. Department of Agriculture (USDA) loans, and Department of Veterans Affairs (VA) approved loans. FHA and USDA loans require mortgage insurance to be built into the loans. VA loans are guaranteed by the Department of Veterans Affairs, requiring a “funding fee” in place of mortgage insurance. The funding fee varies based on your type and length of military service, disability status, down payment amount, whether you’re buying a home or refinancing, and whether it is your first VA loan or if you’ve had a VA loan before.

If looking at a conventional loan and putting less than a 20% down payment on the purchase, a lender may arrange for mortgage insurance with a private company. Private mortgage insurance rates vary by several factors, including the down payment amount, your credit score, and the private mortgage insurance company. Typically, PMI is paid monthly as part of your mortgage payment, with little or no initial payment required at closing.

Once you’ve paid off some of your mortgage loans, you may be eligible to cancel the remaining mortgage insurance. It’s best to work with your lender and ask questions about the possibility of canceling but know that you’ll need to pay down your principal balance to 80 percent or lower of the home’s original value.

Our Peoples mortgage lenders can help you determine what type of mortgage might be best for your financial situation. You can apply online by selecting a lender or calling 888.929.9902 and asking to speak to a mortgage lender.


Ryan Kellenberger headshotRyan Kellenberger
Mortgage Lender NMLS# 1608298
Ryan has more than 10 years of experience in community focused financial institutions, mainly in customer relationship development. He is also expanding to loan processing and collections.