Mortgage insurance is not to be mistaken as homeowners insurance. Just like many clients, don’t be confused if you’ve asked, “What’s mortgage insurance and why do I have to pay for it?” Mortgage insurance is required for most home loans that don’t have at least 20% equity, which is based on an appraised value.
It’s paid by the homeowner on a monthly basis which is built into the total mortgage payment. It’s there to protect the investor because of the risk of foreclosure on the loan. VA loans are the only loans that do not have mortgage insurance. Conventional mortgages have private mortgage insurance also known as (PMI). FHA loans have a different insurance name and that’s called mortgage insurance premium, also known as (MIP).
If you can qualify on a conventional loan, that is the way to go. FHA is still a great loan option if there are certain qualifying issues. We can always start with FHA and then refinance to a conventional loan, without mortgage insurance down the road.