Insurance the lender requires when your down payment is less than 20%. Called PMI on conventional loans, MIP on FHA loans, and a funding fee on VA/USDA. Protects the lender, not you.
Mortgage insurance is what the lender requires when you put down less than 20% on most loans. It's a way for the lender to be compensated if you default, since you have less of your own money at risk. It comes in different forms depending on the loan type:
PMI (Private Mortgage Insurance) — conventional loans. Monthly premium, falls off automatically at 78% LTV.
MIP (Mortgage Insurance Premium) — FHA loans. Upfront premium (1.75% rolled into the loan) plus monthly. Stays for most of the loan's life unless you refinance.
VA Funding Fee — VA loans. One-time fee (typically 2.15%) at closing, no monthly mortgage insurance.
USDA Guarantee Fee — USDA loans. Upfront 1% + annual 0.35% paid monthly.
For most buyers under 20% down, mortgage insurance is the price of admission — but the math often still works out compared to waiting years to save 20%.
Example
$400K home, 5% down ($20K), $380K loan: Conventional PMI ~$190/mo (drops at 78% LTV). FHA MIP $554 upfront fee/mo equivalent plus ~$175/mo (stays until refi). VA $8,170 funding fee rolled in, $0/mo. USDA ~$110/mo annual fee.
Also known as
MI, MIP, PMI, mortgage insurance premium