Mortgage Insurance: Conventional vs FHA vs VA vs USDA Loans
Depending on how much you are able to put down as a down payment, mortgage insurance is one of the major costs associated with taking out a loan. The fee is required for most borrowers with less than 20 percent sales price as a down payment. Mortgage insurance helps hedge against the losses that arise when a borrower defaults. Different home loans in Texas, including first time home buyer programs, conventional loans, FHA, and USDA loans, carry this cost. If you are looking for a home loan in Texas, knowing the mortgage insurance requirements in advance will help you better plan your monthly payment obligations. We’ve outlined the fee for the main different loan programs below.
Private Mortgage Insurance (PMI) rates on conventional loans usually varies in the range of $30-$70 per month per each 100,000 of the loan amount borrowed, as a rough estimate. The actual amount would depend on multiple factors such as your credit score, insurer guidelines, and your down payment amount.
Borrowers opting for an FHA loan cannot buy private mortgage insurance (provided by private insurers) and will have to opt for government mortgage insurance specially designed for those with FHA loans, called Mortgage Insurance Premium (MIP). There is an upfront mortgage insurance premium rate for FHA loans which is 1.75 percent of the base loan amount. Luckily, however, this one time fee can be rolled into the loan amount if you wish. In addition to the one-time fee, there is an annual insurance premium as well. Though this fee can vary significantly based on down payment, length of loan term, and purchase vs. refi transaction, the typical fee is 0.85% of the loan amount. It is a part of your monthly payment and, if your down payment is less than 10%, it never goes away until you sell your home or refinance. See below for a better breakdown on annual MIP rates (as of January 2017):
- 30-year loan, down payment (or equity) of less than 5 percent: 0.85 percent
- 30-year loan, down payment (or equity) of 5 percent or more: 0.80 percent
- 15-year loan, down payment (or equity) of less than 10 percent: 0.70 percent
- 15-year loan, down payment (or equity) of 10 percent or more: 0.45 percent
- Streamline refinance (all terms and down payment): 0.55 percent
One of the benefits of opting for a VA loan is that you are not required to opt for mortgage insurance. Rather, you will have to pay an upfront funding fee that can be financed into your loan. The funding fee usually varies in the range of 1.25 percent-3.3 percent of the total loan amount depending on your type of service and the down payment amount.
When opting for a USDA loan, you will have to take two types of insurance- an upfront guarantee fee and a monthly fee. If you are looking for a USDA loan, we have some good news for you, both the upfront guarantee and monthly fee rates were slashed from 2.75 percent to- 1 percent and 0.50 percent to 0.35 percent, respectively, in 2016. USDA revises these rates at regular intervals, though, so make sure and talk with a mortgage expert to be sure the accurate costs.