Mortgage insurance rules vary sharply by loan program. The type of loan you choose affects whether you pay private mortgage insurance, mortgage insurance premiums, a funding fee, a guarantee fee or no monthly mortgage insurance at all.
Conventional loans often use private mortgage insurance, or PMI, when you have less than 20% equity. FHA loans use mortgage insurance premiums, or MIP. VA loans do not require monthly mortgage insurance, but most borrowers pay a one-time funding fee. USDA loans do not use traditional PMI either, but they do use upfront and annual guarantee fees.
The name matters because each cost has different rules for when it applies, how it is paid and whether it can be removed.
Mortgage Insurance By Loan Type: PMI, FHA MIP, VA Funding Fees And USDA Fees
| Loan Type |
Monthly Mortgage Insurance Or Equivalent |
Upfront Cost |
Can It Be Removed? |
| Conventional |
PMI often applies when equity is below 20%. |
Usually none as a separate upfront PMI charge, though payment structure can vary. |
Often yes. You can usually request cancellation at 80% of original value, and automatic termination generally applies at 78% if the loan is current. |
| FHA |
Annual MIP usually applies and is generally paid monthly. |
Upfront MIP usually applies. |
Sometimes, but it is usually harder to remove than conventional PMI and may require refinancing. |
| VA |
No monthly mortgage insurance. |
A one-time funding fee usually applies unless the borrower is exempt. |
Not applicable because there is no monthly PMI. |
| USDA |
Annual fee applies and is generally paid monthly. |
Upfront guarantee fee applies. |
Generally remains while the USDA guaranteed loan is outstanding. |
What PMI Is And What It Is Not
Private mortgage insurance, or PMI, is insurance on certain conventional loans. It protects the lender, not the borrower, if the borrower defaults.
PMI is usually required when your down payment is less than 20% of the purchase price, or when you refinance with less than 20% equity.
PMI is not the same as FHA MIP, the VA funding fee or USDA guarantee fees. Those are separate loan-program costs with separate rules.
PMI Rules For Conventional Loans
Conventional PMI is what most borrowers mean when they talk about mortgage insurance. On many conventional loans, PMI applies when you start with less than 20% equity.
You generally have the right to ask your servicer to cancel PMI on the date your principal balance is scheduled to reach 80% of the home’s original value. PMI generally terminates automatically when your principal balance is scheduled to reach 78% of the home’s original value, as long as your loan is current.
That can make conventional PMI more flexible than FHA mortgage insurance in many cases.
What Original Value Means
For conventional PMI cancellation, original value generally means the lesser of the home’s sales price or appraised value when the loan was made. That means the 80% and 78% thresholds are usually based on the original value, not the home’s current market value.
Some borrowers may be able to request PMI removal based on a current property value, but that depends on loan rules, servicer requirements, payment history and whether a new valuation supports the request.
FHA Mortgage Insurance Premiums
FHA loans do not use PMI. They use mortgage insurance premiums, or MIP.
FHA borrowers generally pay both an upfront premium and an annual premium that is collected monthly. For many newer FHA loans, annual MIP usually lasts 11 years if the starting loan-to-value ratio is 90% or less, and often lasts for the life of the loan if the starting loan-to-value ratio is above 90%. That generally means that if your down payment is less than 10%, you may pay MIP for the full loan term.
That structure is why many FHA borrowers later compare refinancing into a conventional loan once they have enough equity and a stronger credit profile.
VA Funding Fee
VA loans do not require monthly mortgage insurance. Instead, many borrowers pay a one-time VA funding fee.
The VA funding fee helps lower the cost of the program for taxpayers because VA home loans do not require down payments or monthly mortgage insurance.
Some eligible borrowers, including some veterans with service-connected disabilities, may be exempt from the funding fee. If the fee applies, it can usually be paid at closing or financed into the loan.
USDA Guarantee Fees
USDA loans do not use traditional PMI. USDA guaranteed loans use an upfront guarantee fee and an annual fee instead.
USDA’s current guaranteed-loan program materials list an upfront guarantee fee of 1.00% and an annual fee of 0.35% of the unpaid principal balance.
The annual fee is an ongoing cost, even though it is not called PMI. Because it is based on the unpaid principal balance, the dollar amount can decrease as the loan balance goes down.
Why The Differences Matter
The biggest practical difference is removability.
Conventional PMI is often removable under cancellation and termination rules. FHA MIP is usually harder to remove and may require refinancing into a different loan type. VA loans avoid monthly mortgage insurance, while USDA guaranteed loans generally keep the annual fee in place while the loan remains outstanding.
That means the lowest note rate does not always produce the lowest all-in housing cost. Compare the full monthly payment, upfront costs, mortgage insurance or fee structure, and how long each cost is expected to last.
How To Compare Mortgage Insurance Costs
When comparing loan programs, look beyond whether the loan uses “PMI.” A loan with no PMI can still have another insurance-like cost or upfront program fee.
Compare:
- Monthly principal and interest.
- PMI, MIP, annual fee or other monthly program cost.
- Upfront mortgage insurance, funding fee or guarantee fee.
- Whether the upfront cost is paid in cash or financed into the loan.
- How long the monthly cost lasts.
- Whether the cost can be removed without refinancing.
- Total cost over the time you expect to keep the loan.
This comparison can change the answer. A loan with a slightly lower interest rate may still cost more if the mortgage insurance or program fee lasts longer.
The Bottom Line
PMI requirements depend on loan type, but PMI is not the right label for every program. Conventional loans often use PMI when you start below 20% equity, and that PMI is often removable. FHA loans use MIP, which can last for the life of the loan depending on the starting loan-to-value ratio and loan term.
VA loans do not require monthly mortgage insurance, but many borrowers pay a one-time funding fee. USDA loans do not use traditional PMI, but they use upfront and annual guarantee fees.
Before choosing a loan, compare the full payment and total cost over time, not just the interest rate or whether the loan uses the word “PMI.”
Frequently Asked Questions
Is PMI The Same As FHA MIP?
No. PMI is private mortgage insurance for certain conventional loans. FHA loans use mortgage insurance premiums, or MIP.
When Can Conventional PMI Be Removed?
You can generally request PMI cancellation when your loan balance is scheduled to reach 80% of the home’s original value. PMI generally terminates automatically when the balance is scheduled to reach 78% if the loan is current.
Do FHA Loans Have PMI?
No. FHA loans do not use PMI. They use upfront and annual mortgage insurance premiums instead.
Can FHA MIP Be Removed?
Sometimes, but it is usually harder to remove than conventional PMI. For many newer FHA loans, annual MIP lasts 11 years if the starting loan-to-value ratio is 90% or less, and often lasts for the life of the loan if the starting loan-to-value ratio is above 90%.
Do VA Loans Have Monthly Mortgage Insurance?
No. VA loans do not require monthly mortgage insurance. Many borrowers pay a one-time VA funding fee, though some eligible borrowers are exempt.
Do USDA Loans Have PMI?
No. USDA loans do not use traditional PMI. USDA guaranteed loans use an upfront guarantee fee and an annual fee instead.
Which Loan Type Has The Easiest Mortgage Insurance To Remove?
Conventional PMI is often the easiest to remove because borrower-requested cancellation and automatic termination rules may apply. FHA, VA and USDA use different structures, so there may be no monthly PMI to remove or the cost may require refinancing to eliminate.
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