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LRC Homebuying Edition - Day 16: Mortgage Insurance

LRC Homebuying Edition - Day 16: Mortgage Insurance

New to the Live Richer Challenge: Homebuying Edition? Learn more about it HERE.

Need to catch up? Click on the link where you left off and then come back!

Day 10: Popular Home Loans

Day 11: Ways to Save

Day 12: Special Housing Programs

Day 13: Review, Reflect, Relax

Day 14: Weekly Inspiration

Day 15:  Your Collateral

WEEK 3: The Home Loan Process

Today’s Easy Financial Task: Learn what mortgage insurance is and how it relates to your mortgage.

How to rock this task:

  • Learn the situations where you may have to pay mortgage insurance
  • Look for mortgage products where lenders pay mortgage insurance

Welcome to the 16th day of the LRC: Homebuying Edition!

Today we’re going to talk about mortgage insurance! If you have no idea what mortgage insurance is, don’t worry. You’ll know how it works by the end of this task!

What is mortgage insurance?

Mortgage insurance is something a lender may charge when you put less than 20% down on a home. The purpose of mortgage insurance is to protect the lender if you stop paying since you put less money into the home upfront. Mortgage insurance can range from 0.30 to 1.5% of the original loan amount per year.

Some low down payment mortgages require insurance while others don’t.

For example, NACA is a low down payment program we discussed last week that doesn’t require mortgage insurance.

How do you pay mortgage insurance?

You usually make payments towards your mortgage insurance each month as part of your mortgage payment.

There are also situations where the lender will pay the mortgage insurance. This is ideal! When a lender pays the insurance it’s called lender-paid mortgage insurance.

Navy Federal Credit Union is an example of a lender that will pay for the mortgage insurance on your behalf.

Mortgage Insurance for Different Loan Programs

Different loan programs call mortgage insurance a different name, but the insurance works the same in each scenario for the most part.

Here’s a breakdown of the mortgage insurance rules for popular loans:

The FHA Loan

The FHA loan (the loan backed by the Federal Housing Administration requiring as low as 3.5% down) has what’s called mortgage insurance premiums (MIP).

You pay upfront mortgage insurance premiums and an annual premium that’s broken down into monthly payments. The upfront premiums may be rolled into your mortgage so you don’t have to pay the upfront fees out-of-pocket.

The VA Loan

The VA loan for veterans does not have “mortgage insurance” technically, but there is a funding fee that’s similar to insurance and it’s a percentage of the home loan amount. The funding fee is an upfront fee, but you can roll it into your mortgage to pay it off monthly as well.

The USDA Loan

The USDA loan (for people who live in rural and suburban areas) has an upfront guarantee fee and an annual fee that is like insurance. The upfront guarantee fee may also be added to your mortgage so you don’t have to pay it at closing. The annual fee is split into installment payments that you pay monthly.

Conventional Loan

The insurance that you pay for a conventional loan is called private mortgage insurance (PMI). Private mortgage insurance is the one where lenders may pay the mortgage insurance for you. The best thing to do is shop around with multiple lenders to see what they can offer.

When does mortgage insurance go away?

The number of years you have to pay mortgage insurance depends on the loan program. In some cases, when the equity you have in the home gets to 20% (this means you’ve paid off your loan enough to where it’s like you put 20% down on the home), you can ask to have the mortgage insurance removed.

In other instances, you can refinance the mortgage to remove insurance. A refinance is when you get a new loan that doesn’t have insurance to pay off your old loan. Speak with your mortgage provider to understand what the rules are for your mortgage program.

Your Task

Your task today is to look for lenders that pay mortgage insurance.

Government-backed loan programs like the FHA, VA, USDA, and conventional loans may have lender-paid insurance — you have to look around.

Not sure where to look? Try local credit unions and other local financial institutions. Then report back to share the wealth!

Let us know what you find in the comments and in the Facebook group.

Don’t forget to reach out to your accountability partner(s) and check into the Dream Catchers: LIVE RICHER group. Share what you’ve learned today with your tweeps:

 Today I learned what mortgage insurance is and how it impacts my next home purchase. Day 16: #LiveRicherChallenge Click To Tweet

Live richer,


You can reach out to me here:

Twitter: @thebudgetnista

Instagram: @thebudgetnista

Facebook: The Budgetnista

Private Forum: Dream Catchers : LIVE RICHER

Want to work through the Live Richer Challenge: Homebuying Edition in a workbook? It's part of a bestselling series!

Click the link below and get your copy.

P.S. If you haven't already... Get your Challenge Freebies from our Live Richer Challenge: Homebuying Edition coauthor, Netiva Heard. Click the pic below if you'd like to learn more about Netiva's services. You'll receive a discount! Just let her know you're a Dream Catcher

P.P.S. Here’s a copy of the Challenge Calendar. It’s a fun way to keep track of your progress.

P.P.P.S. Don’t forget to get your free Live Richer Challenge: Homebuying Edition Starter Kit. Download it HERE.

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Tiffany “The Budgetnista” Aliche is quickly becoming America's favorite, personal financial educator. The Budgetnista is also an Amazon #1 best selling author (The One Week Budget and Live Richer Challenge), sought-after speaker and teacher of financial empowerment.
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