Mortgage insurance protects the lender, not you, if a loan with a smaller down payment goes bad. Each loan type handles it differently. Conventional loans over 80 percent loan-to-value carry private mortgage insurance (PMI) that can be cancelled under federal law. FHA loans have an upfront premium of 1.75 percent of the base loan amount plus an annual premium that lasts 11 years or the life of the loan depending on your down payment. VA loans have no monthly mortgage insurance but charge a one-time funding fee unless you're exempt. USDA loans charge an upfront and annual guarantee fee, which for fiscal year 2027 are 1.00 percent and 0.35 percent.
A smaller down payment means the lender, or the government program behind the loan, stands to lose more if the home is sold in foreclosure for less than the balance. Mortgage insurance or a guarantee covers part of that loss, which is what lets programs lend above 80 percent loan-to-value. The CFPB is clear that mortgage insurance of any kind protects the lender, not the borrower (CFPB). It doesn't pay your mortgage if you lose your job, and it isn't homeowners insurance. See homeowners insurance for the policy that covers the house.
Fannie Mae requires a primary mortgage insurance policy on a conventional first mortgage with a loan-to-value above 80 percent, unless the lender uses another charter-compliant form of credit enhancement. On a purchase, the value is the lower of the sales price or the appraised value (Selling Guide B7-1-01).
The premium is set by the private mortgage insurer based on risk factors such as loan-to-value, credit score and coverage level, so there isn't one PMI number to print. Common ways to pay:
See private mortgage insurance for more on how PMI is priced and structured.
The Homeowners Protection Act sets federal rules for borrower-paid PMI on most conventional loans (12 U.S.C. 4902). The CFPB summarizes them (CFPB):
Different rules apply when the lender pays the mortgage insurance. See removing PMI.
FHA collects two premiums (HUD 4000.1 II.A.2.e and Appendix 1.0):
How long the annual premium lasts depends on your starting loan-to-value. On loans longer than 15 years, it runs 11 years if your loan-to-value at origination is 90 percent or less, and for the full term if it's above 90 percent. Loans of 15 years or less follow a similar split with their own breakpoints. Most FHA buyers who put down the minimum end up in the full-term category, which is why some later refinance to a conventional loan once they have equity. See FHA mortgage insurance for the full table.
VA loans don't require a down payment or monthly mortgage insurance. Instead, most borrowers pay a one-time funding fee, which can be financed. The amount depends on the loan type, your down payment and whether you've used the benefit before. You don't pay it if you receive VA compensation for a service-connected disability, are eligible for that compensation but receive retirement or active-duty pay instead, are a surviving spouse receiving Dependency and Indemnity Compensation, or meet VA's other listed exemptions, such as a qualifying proposed or memorandum rating before closing (VA). See the VA funding fee.
USDA's guaranteed program charges an upfront guarantee fee and an annual fee. For fiscal year 2027, which runs October 1, 2026, through September 30, 2027, USDA lists an upfront fee of 1.00 percent and an annual fee of 0.35 percent for both purchases and refinances (USDA Rural Development notice). These are set each fiscal year, so check the current notice for later closings.
Depending on the program, mortgage insurance is collected monthly, upfront, or both. An upfront fee that's financed raises your loan amount. Financing it doesn't make it free, and you pay interest on it over time. On the Loan Estimate, monthly mortgage insurance appears in your projected payments, and upfront premiums appear in closing costs or as part of the loan amount.
When you compare an FHA quote with a conventional quote, the note rate alone isn't the comparison. One carries an upfront premium and an annual premium that may last for the life of the loan. The other carries PMI that can be cancelled under federal rules. Put both Loan Estimates side by side, look at the mortgage insurance lines and the cash to close, and think about how long you expect to keep the loan.
This example is made up and uses no rate or payment figures. Tasha is buying a $280,000 home in Haltom City and compares two options. With FHA and HUD's minimum required investment, her base loan is $270,200 and the upfront premium at 1.75 percent is $4,728.50, which she can finance. Her starting loan-to-value is above 90 percent, so the annual premium would run for the full term. With a conventional loan at 95 percent loan-to-value, she'd have borrower-paid PMI instead, and under the Homeowners Protection Act it would end automatically when her balance is scheduled to reach 78 percent of the original value, or earlier on request at 80 percent if she qualifies. Which is better depends on her credit, the actual quotes and how long she expects to keep the loan.
Trying to decide between FHA and conventional, or wondering whether you're exempt from the VA funding fee? I'll lay out the mortgage insurance on each option for your down payment and credit, including how and when it would end. Schedule a call, or when you're ready, start an application.
Links checked Oct 21, 2026.
About the author: McKade Lively, NMLS 2704474, American Pacific Mortgage Corporation dba True North Home Loans, NMLS 1850.
Equal Housing Opportunity.
Last reviewed: Oct 2026