Mortgage Insurance Explained: PMI, FHA MIP, VA Funding Fee and USDA Fees

Mortgage insurance explained in one line: it is a cost you pay that protects your lender if you stop making payments. You usually need it when you put down less than 20% on a conventional loan, and on almost every FHA and USDA loan. VA loans skip monthly mortgage insurance but charge a one-time funding fee instead.

Each loan type handles this differently. Conventional loans use private mortgage insurance (PMI), which you can cancel as you build equity. FHA loans charge a mortgage insurance premium (MIP) upfront and every year, often for the life of the loan. USDA charges a guarantee fee upfront and yearly. VA charges its funding fee once.

This guide breaks down all four, with the current official rates, a side-by-side table, and the exact steps to remove PMI. It also explains why the cheapest choice depends on how long you plan to keep the loan.

What is mortgage insurance, and who does it protect?

Mortgage insurance is a policy or fee that covers part of the lender’s loss if a borrower defaults. You pay for it, but it protects the lender or the government agency backing the loan. In exchange, lenders accept smaller down payments than they otherwise would.

Without mortgage insurance, most lenders would require 20% down. On a $350,000 home, that is $70,000. Mortgage insurance is the trade-off for buying sooner with less cash.

How do the four types compare?

The four types differ in who charges them, whether there is an upfront cost, how much the yearly cost is, and whether it ever goes away. PMI is the only one that can be cancelled by request as you build equity; FHA MIP often lasts the full loan term.

The rest of this guide covers each row in detail.

How does PMI work on conventional loans?

Private mortgage insurance applies to conventional loans with less than 20% down. A private insurer sets the price based on your credit score, down payment, loan type and coverage level. You usually pay it monthly, and you can remove it once you reach enough equity.

PMI pricing is not set by the government, so there is no single rate. Borrowers with high credit scores and 10% or more down usually pay much less than those with lower scores and 3% down. Ask each lender to show the PMI cost on its Loan Estimate.

Ways to pay PMI

1. Borrower-paid monthly PMI. The most common. Added to your monthly payment and removable.
2. Single-premium PMI. Paid once at closing. No monthly charge, but you do not get it back if you sell or refinance early.
3. Lender-paid PMI. The lender pays it and charges you a higher interest rate. It usually cannot be removed, because it is built into the rate.

Affordable programs can reduce the coverage needed. For example, Freddie Mac’s Home Possible says coverage requirements are reduced for loan-to-value ratios above 90%. See our guide to conventional loan requirements for the 3% down options.

How do you remove PMI?

The federal Homeowners Protection Act gives you three ways out. You can request cancellation in writing at 80% of the original value. Your servicer must end it automatically at 78%. And it must end at the midpoint of the loan term, even if neither threshold is reached.

The CFPB’s summary explains the conditions. “Original value” is usually the lower of the purchase price or the appraised value when you bought.

1. Check your balance against 80%. Divide your loan balance by the original value. Extra principal payments can get you there sooner.
2. Confirm you qualify. You need a good payment history, be current, and have no second mortgage or other junior lien.
3. Send a written request to your servicer asking to cancel PMI.
4. Expect a value check. The servicer may ask for proof the home has not lost value, often an appraisal at your cost.
5. If you do nothing, PMI must end automatically when your balance is scheduled to reach 78%, as long as you are current.

How much does FHA mortgage insurance cost?

FHA charges an upfront premium of 1.75% of the base loan amount, usually added to the loan. It also charges an annual premium, split into monthly payments, of 0.15% to 0.75% depending on the loan term, size and down payment. Most 30-year loans with less than 5% down pay 0.55%.

These rates come from HUD’s Mortgagee Letter 2023-05, which cut annual MIP for loans endorsed on or after March 20, 2023. We found no later HUD notice changing single-family forward MIP rates as of October 2026.

FHA annual MIP for loans longer than 15 years

For loans over $726,200 with loan-to-value over 90% up to 95%, the rate is 0.70% for the life of the loan. For terms of 15 years or less, annual MIP ranges from 0.15% to 0.65%.

Is FHA MIP permanent?

Only if you put less than 10% down. With 10% or more down, annual MIP ends after 11 years. With less, it stays for the life of the loan. Many FHA borrowers remove it by refinancing into a conventional loan once they have 20% equity. Our FHA loan requirements guide and FHA vs conventional comparison explain when that switch makes sense.

How does the VA funding fee work?

VA loans do not charge monthly mortgage insurance. Instead, most borrowers pay a one-time funding fee. For a first-use purchase loan it is 2.15% with less than 5% down, 1.5% with 5% or more down, and 1.25% with 10% or more down. It can be paid at closing or added to the loan.

These rates come from the VA’s funding fee page. The fee is based on the loan amount, not the purchase price.

A VA cash-out refinance costs 2.15% on first use and 3.3% after. An Interest Rate Reduction Refinance Loan (IRRRL) costs 0.5%.

Who is exempt from the VA funding fee?

You do not pay the fee if you receive VA compensation for a service-connected disability, or are eligible for it but get retirement or active-duty pay instead. Surviving spouses who receive Dependency and Indemnity Compensation are exempt. So are service members with a proposed or memorandum disability rating before closing, and active-duty members who show proof of a Purple Heart. See our VA home loan eligibility guide for more.

How do USDA guarantee fees work?

USDA loans charge an upfront guarantee fee and an annual fee for the life of the loan. USDA’s program materials list the upfront fee at 1% of the loan and the annual fee at 0.35% of the outstanding balance, paid monthly. USDA can change the fees each fiscal year, which starts October 1.

The USDA program flyer lists the 1% and 0.35% figures. Federal rules in 7 CFR 3555.107 cap the upfront fee at 3.5% and the annual fee at 0.5%. The upfront fee can usually be financed into the loan.

How does mortgage insurance affect what you can borrow?

Monthly mortgage insurance counts as part of your housing payment, so it raises your debt-to-income ratio. A higher premium can reduce the loan amount you qualify for. Upfront fees that are financed raise your loan balance, which also slightly raises your monthly payment.

Lenders add the monthly mortgage insurance to your principal, interest, taxes, insurance and HOA dues when they work out your payment. On a tight budget, a few hundred dollars of PMI or MIP can be the difference between qualifying and not.

Financing an upfront fee is convenient because you do not need the cash at closing. But you pay interest on it for the life of the loan. On a $300,000 FHA loan, financing the 1.75% upfront premium adds $5,250 to the balance.

There are a few ways to lower the impact:

1. Raise your down payment. Moving from 3% to 5% or 10% down usually lowers PMI, and 10% down shortens FHA MIP to 11 years.
2. Improve your credit score first. PMI pricing is tied closely to credit score.
3. Compare payment options. Ask for quotes on monthly, single-premium and lender-paid PMI.
4. Use assistance programs. Grants or second loans from down payment assistance programs can raise your effective down payment.

Which mortgage insurance is cheapest?

It depends on your credit, down payment and how long you keep the loan. For borrowers with strong credit, PMI is often cheaper over time because it can be removed. FHA can cost less in the early years for lower credit scores, while VA is usually cheapest for eligible veterans.

Think about the full timeline. A 0.55% FHA annual premium that lasts 30 years can cost more in total than PMI that ends after seven or eight years. But if you plan to sell in a few years, the upfront costs matter more than the long tail.

The best way to compare is to get Loan Estimates for each option on the same day. Look at the monthly mortgage insurance, any upfront fee, and when each one ends. For a wider look at loan choices, see our guide to types of mortgage loans.