“A home is one of the most important assets that most people will ever buy.” – Warren Buffett
According to the FHFA House Price Index, home prices rose 1.8 percent between Q4 2024 and Q4 2025, with another 0.8 percent increase from Q3 to Q4 2025 alone.
Most people budget for the down payment and the monthly mortgage, but mortgage insurance catches buyers off guard.
It’s one of the costs that comes with homeownership that not everyone sees coming, and even fewer understand what it’s for.
What is Mortgage Insurance?
Mortgage insurance is a policy that protects a mortgage lender when the borrower stops making payments, dies, or defaults on their loan contractual obligations.
How Does Mortgage Insurance Work
Lenders charge a monthly insurance premium on top of your monthly mortgage payment, but some loans also have you pay a lump-sum upfront premium at origination. The type you’ll need depends on your mortgage loan and down payment amount.
Types of Mortgage Insurance
The insurance you can get from different mortgages includes:
Private Mortgage Insurance (PMI)
Private mortgage insurance (PMI) is charged to conventional loan borrowers when their down payment is under the 20% threshold.
FHA Qualified Mortgage Insurance Premium (MIP)
When you get an FHA-backed mortgage, you’ll have to pay a qualified mortgage insurance premium (MIP). This includes an upfront premium of 1.75% of the loan amount at closing, plus a monthly insurance premium.
USDA Guarantee Fees
USDA loans don’t require a down payment, but they do include an upfront and annual guarantee fee that acts like insurance.
VA Mortgage Funding Fee
VA loans do not require insurance, but most borrowers must pay a one-time funding fee. Based on your circumstances, you might be eligible for a waiver or refund through the VA.
Mortgage Title Insurance
Mortgage title insurance protects the lender in case a title dispute emerges after closing. Before the sale is complete, a title search looks for liens or ownership disputes.
Mortgage Protection Life Insurance
A mortgage protection policy provides a payout if the borrower passes away before they pay off their mortgage.
Payouts can be on a declining-term basis, with the amount decreasing as the mortgage balance declines or levels. The benefit is paid to either the lender or the heirs of the borrower.
Read More: Mortgage Broker: Definition, Process Steps, and More
Pros and Cons of Mortgage Insurance
Mortgage insurance can work in your favor or against you, depending on your situation.
Pros
- Instead of waiting to save 20%, you can buy a home with a lower down payment.
- You have more buying options because of different mortgage loan types, amounts, and insurance requirements.
- PMI on a conventional loan expires automatically once your balance reaches 78% of the home’s original value, and you can request removal well before that.
Cons
- Certain loans charge a one-time fee at closing, increasing your total costs.
- The premiums raise your monthly mortgage payment.
- With government-backed loans, such as FHA loans, you must refinance to eliminate mortgage insurance.
How Much Is Mortgage Insurance?
- Conventional loan PMI costs between 0.2% and 2% of the loan amount per year. Your credit score, down payment amount, and loan term all affect where you fall in that range.
- FHA loans charge a flat upfront fee of 1.75% of the loan amount at closing, plus an annual premium between 0.15% and 0.5% split into monthly payments. Your credit score doesn’t change these rates.
- USDA loans come with a 1% upfront guarantee fee and a 0.35% annual fee billed monthly. You can add both to your loan balance instead of paying out of pocket.
- VA loan funding fees run from 0.5% to 3.3%. The exact amount depends on your loan type, whether you’re buying or refinancing, and whether you’ve used a VA loan before.
How to Avoid Mortgage Insurance
Here are a few ways to reduce or eliminate mortgage insurance.
Put 20% or More Down
The most direct way to avoid paying insurance is to put at least 20% down on a conventional loan.
Take a Second Mortgage
A piggyback loan, or 80-10-10 mortgage, splits your financing across two loans so you can reach a 20% down payment on the first. It gets rid of PMI, but you’re taking on two sets of closing costs, and possibly more interest.
Go for a Lender-Paid Mortgage Insurance
Some lenders offer lender-paid insurance and absorb the insurance cost. In return, they charge a higher interest rate.
Cancel When Possible
If you already pay PMI, you’re not stuck with it forever. Build enough equity, and you can request to cancel PMI before it automatically drops off.
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Frequently Asked Questions
Is it worth getting mortgage insurance?
It depends on your situation. If waiting to save 20% means delaying homeownership by years, mortgage insurance may be worth the added cost to get into a home sooner.
Do I really need to pay mortgage insurance?
For many buyers, yes. A 20% down payment sounds straightforward in theory, but in practice, it’s out of reach for many borrowers. PMI payments can be a disadvantage when buying a home before hitting that threshold.
Is it worth refinancing to get rid of MIP?
If refinancing is your only path to dropping mortgage insurance, it can be worth it. That said, run the numbers first. Refinancing comes with closing costs, and the savings need to outweigh what you’ll spend to make it worthwhile.
Conclusion
Mortgage insurance isn’t ideal, but for many borrowers, it’s the reason they can buy a home without waiting years to save up. The more you know about it, the better equipped you are when it’s time to choose a loan.
“If you’re going to buy a house, be responsible with it. And if you’re going to stay living in that house for the rest of your life, pay off that mortgage as soon as you possibly can.” – Suze Orman
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