Do All Banks Offer Mortgage Insurance on Their Home Mortgages?
Banks do not offer mortgage insurance for mortgages. They require borrowers to purchase it for certain mortgage programs. Mortgage insurance protects the lenders against losses if the borrower cannot pay the mortgage and the lender forecloses on the home. Several loan programs require their own types of mortgage insurance or loan guarantee. Each program differs, as do the types and cost of mortgage insurance, depending on the company that provides the coverage.
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Conventional Mortgages
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Conventional mortgage lenders require the borrower to purchase mortgage insurance whenever their loan amount exceeds 80 percent of the home's value at closing. This could result from the borrower providing less than a 20 percent down payment or refinancing a mortgage with a balance exceeding 80 percent of the home's value. Private mortgage insurance (PMI) companies charge different prices for their insurance based upon the amount of equity remaining in the home, the loan type, the loan amount and the borrower's credit profile. Typically, PMI companies add their payment to the borrower's mortgage payment, but other mortgage insurance programs exist that allow for prepayment of the mortgage insurance at close.
FHA Mortgages
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The Federal Housing Administration (FHA) requires two types of mortgage insurance on all their loans. FHA does not lend money directly to homeowners. FHA only insures lenders that approve loans that meet all of FHA's guidelines and that collect the required FHA mortgage insurance premiums. FHA requires the borrower to pay or finance the Up-Front Mortgage Insurance Premium (UFMIP). If the homeowner chooses to finance the UFMIP, the loan amount will rise by the amount of UFMIP financed. Additionally, FHA requires homeowners to pay monthly mortgage insurance premiums along with their mortgage payment.
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VA Mortgages
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Veteran's Affairs (VA) guarantees home loans for eligible veterans. Like FHA, VA does not lend directly to homeowners. VA guarantees the lender against losses when it provides a loan to an eligible veterans and collects the required funding fee at closing. The VA funding fee works the same as mortgage insurance. VA only requires the initial funding fee and does not require any monthly mortgage insurance or funding fee costs for the loan.
Eliminating Mortgage Insurance
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Homeowners may eliminate mortgage insurance on their loan. Conventional lenders must remove mortgage insurance when a homeowner proves the home's equity is at least 20 percent or more. The lender must automatically remove the mortgage insurance when the home has at least 22 percent equity. FHA mortgages require mortgage insurance for the life of the loan, and it must be refinanced into a loan program not requiring mortgage insurance to eliminate it. VA loans always require that the borrower pay the funding fee when closing any VA loan, unless the borrower is a qualified disabled veteran.
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