What Mortgage Loans Require Private Mortgage Insurance?

Do VA loans have PMI? What about conventional or USDA loans? A common misconception many first-time buyers have is that private mortgage insurance is unavoidable. However, not all loans require PMI. Even the ones that do require PMI might dispense with it once you build up a certain amount of equity in your home. You can earn this equity after years of payments or you can start with equity by putting down a hefty down payment.

What Is Private Mortgage Insurance?

When it comes to most forms of insurance, the individual seeking protection buys his or her own policy. For example, you protect your health with a health insurance policy. When it comes to PMI, however, the opposite is true. Your insurance policy protects the lender if you ever stop paying your mortgage. Mortgages commonly include PMI provisions.

Do VA Loans Have PMI?

According to the U.S. Department of Veteran Affairs, VA loans include no PMI. It calculates that this can save buyers around $150 per month when buying a $250,000 home with 5% down. When people do not pay PMI, they can also be approved by a larger mortgage worth the difference. This could mean an extra $30,000 in mortgage eligibility.

Do USDA Loans Have PMI?

If you are not a veteran and would like to take advantage of these savings, Bankrate points out that USDA loans do not have PMI either. There is a common misconception that you have to purchase a home in the middle of nowhere to qualify for this loan, but roughly 90% of America’s landmass is classified as rural. Homes in these areas might also cost a whole lot less.

Do FHA Loans Have PMI?

Strangely enough, FHA loans are the only government-backed home loans that require mortgage insurance. This is not called PMI, but it works the same. The good news is that the rates tend to be a little lower. On the flip side, you do not have the option to stop paying mortgage insurance once you reach a certain level of equity. You can, however, refinance to a conventional loan.

Do Conventional Loans Have PMI?

Conventional loans do have private mortgage insurance, but you can avoid it after 20% of equity. You can achieve this by paying at least a 20% down payment at the start of the loan process. Your PMI also varies based on your credit score and the LTV. Some loan terms include automatically removing PMI when you reach the 20% equity threshold. In other instances, you may need to make a formal request. Some homeowners might choose to refinance to take advantage of lower interest rates.

On the upside, when you pay mortgage insurance, it is usually deductible on your tax returns. However, this depends on when you took out your mortgage. To find out if you qualify for this, reach out to a tax professional.

Are you interested in finding out if a VA loan or another mortgage program is right for you? National Home Loans is eager to answer your most pressing questions. Give us a call at 858-227-7447.

Sources:

  1. https://www.consumerfinance.gov/ask-cfpb/what-is-private-mortgage-insurance-en-122/
  2. https://www.bankrate.com/mortgages/basics-of-private-mortgage-insurance-pmi/
  3. https://blogs.va.gov/VAntage/31825/ten-things-veterans-dont-know-va-home-loans/

Written By

John Giannattasio

John Giannattasio is an independent mortgage broker based in San Diego. He brings a wealth of diverse business knowledge and experience to his mortgage practice, which results in a stress-free, seamless, and strategic experience for his clients.

Keep Reading