Mortgage insurance: PMI, MIP, VA fees, and USDA fees

Why mortgage insurance exists

Lenders consider any loan with less than 20% down to be a higher-risk loan. Mortgage insurance is the way that risk gets covered: if you default, the insurance pays out to the lender (not to you).

It’s not optional in those scenarios. The amount and rules differ for the four main programs:

• PMI — Conventional loans

  Private Mortgage Insurance. Required when LTV > 80% on Conventional. Cancels automatically at 78% LTV (and you can request cancelation at 80% LTV). Pricing varies by credit score and LTV.

• MIP — FHA loans

  Mortgage Insurance Premium. Two pieces: an upfront premium (1.75% of loan, rolled in) and an annual premium (~0.55%, paid monthly). If you put less than 10% down, MIP stays for the LIFE of the loan. To remove, you have to refinance to Conventional.

• VA funding fee — VA loans

  A one-time fee (typically 2.15% for first-time use with 0% down, less for repeat use or higher down payments). Can be rolled into the loan. NO monthly mortgage insurance — this is the only one. Disabled veterans and surviving spouses are exempt.

• Guarantee fee — USDA loans

  Two pieces: an upfront fee of 1.0% (rolled in) and an annual fee of 0.35% (paid monthly). Stays for the life of the loan but costs less than FHA MIP.

PMI on Conventional loans

PMI is the most common type of mortgage insurance and the easiest to remove. The Homeowners Protection Act gives you two paths to cancellation:

1. Automatic cancellation at 78% LTV. The lender is required to cancel PMI without you asking, based on the original purchase price (not appreciated value). On a $400,000 home with 5% down, that means PMI auto-cancels around year 11–12 of a normal payment schedule.
2. Borrower-requested cancellation at 80% LTV. You can write to the lender and request cancellation any time after you reach 80%. Lender will check that:
   • You’re current on payments
   • You don’t have any 30+ day lates in the last year
   • The home hasn’t lost value (sometimes a quick BPO is required)

What about appreciation?

If your home has appreciated significantly, you can request PMI removal earlier than the schedule based on the appreciated value. The lender will require a current appraisal (you pay for it, $400–$600). If the new value gives you 20%+ equity, PMI can come off. Most lenders want you to be at least 2 years into the loan to consider this.

FHA MIP: the long shadow

FHA mortgage insurance is the most consequential. It comes in two pieces:

• UFMIP (Upfront Mortgage Insurance Premium): 1.75% of the loan amount, paid at closing or rolled into the loan. Almost everyone rolls it in.
• Annual MIP: Currently 0.55% on most FHA loans (down from 0.85% pre-2023). Billed monthly as 1/12th of the annual amount.

How long you pay annual MIP depends on your down payment:

• Less than 10% down: MIP for the LIFE of the loan. Even if you pay down to 50% LTV, MIP keeps charging. The only exit is to refinance to a Conventional loan.
• 10%+ down: MIP for 11 years. Then it falls off automatically.

VA funding fee

VA loans don’t have monthly mortgage insurance — just a one-time funding fee at closing. The amount depends on your situation:

• First-time use, 0% down: 2.15%
• First-time use, 5% down: 1.50%
• First-time use, 10%+ down: 1.25%
• Subsequent use, 0% down: 3.30%
• Subsequent use, 5%+ down: Same as first-time
• Reserves / National Guard: Same fee structure as active duty
• VA IRRRL (streamline refi): 0.50%
• Cash-out VA refinance: 2.15% / 3.30%

Funding fee is waived for veterans receiving VA disability compensation, surviving spouses receiving DIC, and a few other exempt groups. Almost always, the funding fee is rolled into the loan rather than paid out of pocket.

USDA guarantee fee

USDA’s guarantee fee is essentially the cheapest "PMI" in the market:

• Upfront: 1.0% of loan amount (rolled into loan)
• Annual: 0.35% of loan amount (paid monthly, ~$87 on a $300K loan)

Like FHA MIP, USDA’s annual fee stays for the life of the loan. But because it’s only 0.35% (vs FHA’s 0.55%), it’s rarely a reason to refinance to Conventional unless you’re also reducing the rate.

Common questions