Mortgage insurance is a key part of homeownership for many, especially those planning to make a down payment of less than 20% of the home’s value. If you’re looking to buy a house without a substantial down payment, understanding the different types of mortgage insurance is essential to making informed decisions.

What Is Mortgage Insurance?

Mortgage insurance is a policy that protects the lender in the rare case that you default on your mortgage. Different types of insurance are available, each with its own rules and premiums.

Types of Mortgage Insurance

Private Mortgage Insurance

Private mortgage insurance (PMI) is required for conventional loans should you, the borrower, put down less than 20% of the home’s value. PMI protects the lender if you default on your loan. PMI payments offer some flexibility in that they can be paid in a lump sum, monthly, or split between upfront and monthly payments.

Lenders Mortgage Insurance

Lenders mortgage insurance, or LMI, is typically used in other countries, but some U.S. lenders may offer a similar arrangement. LMI is lender-specific and typically applies to loans with more risk for said lender.

FHA Mortgage Insurance

Backed by the Federal Housing Administration, FHA loans require mortgage insurance regardless of how much you put down. Expect to pay both an upfront premium and an annual one spread out over monthly payments. FHA mortgage insurance remains until the loan is either paid off or refinanced.

VA Loan Guarantee

While VA loans don’t require traditional mortgage insurance, they do come with a one-time VA funding fee. This helps support the Department of Veterans Affairs and can be rolled into your loan. A VA loan is worth considering if you’re an active duty or veteran, as they don’t have monthly mortgage insurance premiums.

How Much Is Mortgage Insurance?

How much you’ll pay for mortgage insurance depends on a variety of factors, including:

• Loan type: Loans are unique, each with its own premium structures.
• Down payment size: Generally speaking, the larger the down payment, the lower the premium.
• Credit score: If you have a high credit score, you may be able to secure lower, more competitive mortgage insurance rates.

You can better understand your potential premiums by using a mortgage insurance calculator or connecting directly with a loan specialist at JustChoice Lending.

Insurance and Tax Deductions

Is mortgage insurance tax-deductible? Yes, if you qualify! Eligibility for the deduction depends on your income level and filing status. If you find you’re eligible, claiming your deduction is easy. Simply itemize your deductions on your tax return using IRS form 1098, which your lender should provide at the end of the year.

How to Avoid Mortgage Insurance

Interested in avoiding mortgage insurance altogether? There may be a few options available to you.

1. Make a large down payment. By putting down at least 20% of the purchase price, you can avoid PMI on conventional loans.

2. Get a VA loan. If you’re eligible, a VA loan is one of the best ways to avoid monthly premiums, as they’re not required.

3. Opt for a piggyback loan. Also known as an 80-10-10 loan, a piggyback loan is when you take out a second mortgage to cover part of the down payment, reducing the need for PMI.

Turn to JustChoice Lending for Expert Guidance

Looking for assistance not just with mortgage insurance but the entire homebuying journey? JustChoice Lending is here to help. We’ll review all the options available to you and provide advice tailored to your financial situation. Get on the path to homeownership today!