Home Buyer FAQ: What is Mortgage Insurance and When is It Required?
Mortgage insurance makes it possible for you to buy a home with a down payment of less than a 20% by protecting the lender against the additional risk associated with low down payment lending. By purchasing mortgage insurance, lenders are comfortable with down payments as low as 3.5% (for FHA-insured loans) or 3% (for conventional loans) of the home's value. Use TSAHC’s Loan Comparison Calculator to estimate your mortgage insurance payment, which can vary by loan type.
Monthly mortgage insurance payments are required for the life of your loan if you have an FHA or USDA loan. If you have a conventional loan, you may cancel your mortgage insurance when your loan balance is paid down to 80% of the property value. Even if you do not request that your mortgage insurance is canceled when your loan balance reaches 80% of your property value, federal legislation requires automatic termination of mortgage insurance when the loan balance reaches 78% of the original property value.