Mortgage Insurance Types: PMI vs MIP vs VA Funding Fee vs USDA Guarantee Fee
By Mortgage Calculator Pro Editorial Team | Reviewed by NMLS-licensed mortgage professionals
PMI. MIP. VA Funding Fee. USDA Guarantee Fee. Four different fees, four different rule sets — and choosing wrong can cost you tens of thousands. Here's everything you need to know.
In This Guide:
- Mortgage Insurance Overview — Why It Exists
- PMI (Private Mortgage Insurance) — Conventional Loans
- MIP (Mortgage Insurance Premium) — FHA Loans
- VA Funding Fee — VA Loans
- USDA Guarantee Fee — USDA Loans
- Side-by-Side Comparison Table
- How to Minimize or Avoid Mortgage Insurance
- Which Insurance Type Is Cheapest?
- Frequently Asked Questions
Mortgage Insurance Overview — Why It Exists
Mortgage insurance is a financial product that protects the lender, not you, if you default on your home loan. It doesn't cover your payments if you lose your job, and it doesn't pay off your mortgage if you die. It exists solely to reimburse the lender for losses when a borrower stops making payments and the property goes into foreclosure.
Lenders require mortgage insurance whenever you make a down payment of less than 20% because the risk of default is higher when you have less equity in the property. The specific type of mortgage insurance you pay depends entirely on which loan program you choose:
- Conventional loans → PMI (Private Mortgage Insurance)
- FHA loans → MIP (Mortgage Insurance Premium)
- VA loans → VA Funding Fee (one-time, not monthly MI)
- USDA loans → USDA Guarantee Fee (annual + upfront)
Key Distinction: Monthly vs One-Time
Some mortgage insurance types are paid monthly (PMI, most MIP), others are paid upfront as a one-time fee (VA funding fee, upfront MIP, USDA upfront fee), and some are a combination (FHA MIP has both an upfront and annual component). Understanding this distinction is critical for comparing true costs across loan programs.
PMI: Private Mortgage Insurance (Conventional Loans)
PMI (Private Mortgage Insurance) is the mortgage insurance required on conventional loans (loans backed by Fannie Mae or Freddie Mac) when you put down less than 20%. It's provided by private mortgage insurance companies like MGIC, Radian, Essent, National MI, and Genworth.
How PMI Works
- Cost: 0.3% to 1.5% of the loan amount annually, depending on credit score and down payment
- How it's paid: Typically added to your monthly mortgage payment
- Duration: Until you reach 80% LTV (request) or 78% LTV (automatic termination)
- Can it be removed? ✅ Yes — by law (Homeowners Protection Act of 1998)
- Tax deductible? ❌ No — the PMI deduction expired after 2021
PMI Cost Table by Credit Score and Down Payment
| Credit Score | 5% Down (95% LTV) | 10% Down (90% LTV) | 15% Down (85% LTV) | Monthly on $300k Loan (10% down) |
|---|---|---|---|---|
| 760+ (Excellent) | 0.55% - 0.75% | 0.35% - 0.55% | 0.25% - 0.40% | $112 |
| 720-759 (Good) | 0.70% - 0.95% | 0.50% - 0.70% | 0.35% - 0.55% | $150 |
| 680-719 (Fair) | 0.90% - 1.20% | 0.65% - 0.90% | 0.50% - 0.70% | $194 |
| 640-679 (Below Avg) | 1.15% - 1.50% | 0.85% - 1.20% | 0.65% - 0.95% | $256 |
| 620-639 (Poor) | 1.35% - 1.80% | 1.05% - 1.50% | 0.85% - 1.20% | $319 |
PMI rates from MGIC, Radian, Essent rate sheets Q2 2026. Monthly column assumes 10% down on $300,000 loan with mid-range rate for that credit tier.
PMI Removal Rules (The Big Advantage)
PMI's biggest advantage over other mortgage insurance types is that it can be removed. Under the Homeowners Protection Act:
- Borrower-requested cancellation: At 80% LTV based on original value — you must submit a written request
- Automatic termination: At 78% LTV — lender must cancel by law
- Appraisal-based removal: If your home has appreciated, a new appraisal can qualify you for early removal
- Mid-term cancellation: If you reach the midpoint of your amortization schedule (varies by loan)
Learn more about PMI removal strategies →
MIP: Mortgage Insurance Premium (FHA Loans)
MIP (Mortgage Insurance Premium) is the mortgage insurance required on all FHA loans. Unlike PMI, MIP has two components: an Upfront Premium (UFMIP) and an Annual Premium. FHA loans are popular with first-time buyers because they allow a 3.5% down payment with a 580 credit score, but the mortgage insurance rules are less flexible than conventional PMI.
Upfront MIP (UFMIP)
- Rate: 1.75% of the base loan amount
- When paid: At closing (can be financed into the loan)
- Example: On a $300,000 FHA loan, UFMIP = $5,250 (can be added to balance, making the loan $305,250)
- Refundable? Partially refundable if you refinance within 3 years (prorated)
Annual MIP
- Rate: 0.45% to 1.05% of the loan amount annually, depending on loan term, LTV, and loan amount
- How it's paid: Divided by 12 and added to your monthly payment
- Duration: Depends on down payment (see table below)
FHA MIP Duration Rules (Critical)
| Down Payment | Loan Term | Annual MIP Rate | MIP Duration | Can Remove Early? |
|---|---|---|---|---|
| Less than 10% | 30 years | 0.55% | Life of loan | No — only via refinance |
| 10% or more | 30 years | 0.50% | 11 years | No — automatic after 11 years |
| Less than 10% | 15 years | 0.70% | Life of loan | No — only via refinance |
| 10% or more | 15 years | 0.45% | 11 years | No — automatic after 11 years |
FHA MIP Trap: Life of Loan
If you put down less than 10% on a 30-year FHA loan, MIP lasts the entire loan term. You cannot remove it by building equity or requesting cancellation. The only way to eliminate FHA MIP is to refinance into a conventional loan once you have 20% equity. This is the single biggest reason borrowers should carefully compare FHA vs conventional before choosing.
Real cost: A $300,000 FHA loan with 3.5% down and 0.55% annual MIP = $1,650/year or $137.50/month in MIP. Over 30 years that's $49,500 in total MIP payments if you can't refinance out.
VA Funding Fee (VA Loans)
The VA Funding Fee is not mortgage insurance in the traditional sense. It's a one-time fee paid to the Department of Veterans Affairs that helps fund the VA loan program. Critically, there is no monthly mortgage insurance on VA loans — which makes them the most cost-effective option for eligible borrowers.
VA Funding Fee Rates (2026)
| Down Payment | First-Time Use | Subsequent Use | Example: $300,000 Loan |
|---|---|---|---|
| 0% down | 2.15% | 3.30% | $6,450 (first use) |
| 5% - 9.99% down | 1.50% | 1.50% | $4,500 |
| 10%+ down | 1.25% | 1.25% | $3,750 |
| VA IRRRL (Streamline Refi) | 0.50% | 0.50% | $1,500 |
Key VA Funding Fee Facts
- Can be financed: The fee can be rolled into your loan amount, so you don't pay it out of pocket
- No monthly MI: Unlike PMI and MIP, there is ZERO monthly mortgage insurance payment
- Refundable? No, but if you get a VA loan and later refinance with another VA loan, the unused portion of the original funding fee is not refunded
- Exemptions: Veterans receiving VA disability compensation are exempt from the funding fee entirely. Surviving spouses of veterans who died in service or from service-connected disabilities may also be exempt
- Tax deductible? No, the funding fee cannot be deducted
VA Loan: The Best Mortgage Deal in America
For eligible veterans, active-duty service members, and National Guard/Reserve members, the VA loan is the most advantageous mortgage product available. Zero down payment, zero monthly mortgage insurance, competitive interest rates, and flexible credit requirements. If you're eligible, the VA loan should be your first choice — especially if you also qualify for a funding fee exemption due to a service-connected disability.
Cost comparison: On a $300,000 loan with 0% down, a conventional loan with PMI could cost $150-$250/month in PMI. Over 8 years (typical time to reach 80% LTV), that's $14,400-$24,000 in PMI. The VA funding fee of $6,450 (financed) plus $0 monthly MI saves you $7,950-$17,550.
USDA Guarantee Fee (USDA Loans)
USDA loans, backed by the U.S. Department of Agriculture, are designed for low-to-moderate-income home buyers in eligible rural and suburban areas. Like the VA loan, the USDA loan has no PMI — instead, it uses a guarantee fee structure with both an upfront and annual component.
USDA Upfront Guarantee Fee
- Rate: 1.00% of the loan amount
- When paid: At closing (can be financed into the loan)
- Example: On a $300,000 USDA loan, upfront fee = $3,000
USDA Annual Guarantee Fee
- Rate: 0.35% of the average outstanding principal balance (declines as you pay down the loan)
- How it's paid: Divided by 12 and added to your monthly payment
- Duration: For the life of the loan
- Can be removed? No — the annual fee lasts as long as the USDA loan exists
USDA Fee Example
Home price: $300,000
Down payment: 0% (USDA requires zero down)
Upfront guarantee fee: $3,000 (financed)
Annual fee: 0.35% of $300,000 = $1,050/year = $87.50/month
Monthly fee over time: Declines as balance decreases — Year 1: $87.50/mo, Year 10: $72/mo, Year 20: $50/mo
Total fees over 30 years: Approximately $25,000 (including $3,000 upfront + $22,000 annual over time)
The USDA guarantee fee is the lowest-cost ongoing mortgage insurance option among all loan programs — just 0.35% annually on a declining balance. Combined with zero down payment, the USDA loan is an excellent option for buyers in eligible areas with moderate incomes.
Side-by-Side Comparison of All Mortgage Insurance Types
| Feature | PMI (Conventional) | MIP (FHA) | VA Funding Fee | USDA Guarantee Fee |
|---|---|---|---|---|
| Upfront Cost | Usually $0 | 1.75% of loan | 1.25% - 3.30% | 1.00% of loan |
| Annual Cost (Monthly Equivalent) | 0.30% - 1.50% | 0.45% - 1.05% | $0 (no monthly MI) | 0.35% (declining) |
| Monthly on $300k | $112 - $319 | $113 - $263 | $0 | $73 - $88 |
| Can Be Removed? | ✅ Yes (80% LTV) | ❌ No (life of loan if <10% down) | N/A (one-time fee) | ❌ No (life of loan) |
| Minimum Down Payment | 3% | 3.5% | 0% | 0% |
| Minimum Credit Score | 620 | 580 (500 with 10% down) | No official minimum | 640 |
| Best For | Good credit, 5-10% down | Lower credit, 3.5% down | Veterans/military, 0% down | Rural buyers, 0% down |
| Total MI Cost Over 10 Years | $13,440 - $38,280 | $22,740 - $37,860 | $3,750 - $6,450 (one-time) | $11,760 (declining) |
Assumes $300,000 loan amount. Total 10-year cost includes upfront fees (amortized) and annual/monthly payments. PMI assumes removal at Year 7 (80% LTV). VA assumes first-time use, 0% down, funding fee financed. Actual costs vary by individual circumstances.
How to Minimize or Avoid Mortgage Insurance
Strategy 1: Put 20% Down (The Classic Approach)
The most straightforward way to eliminate mortgage insurance entirely is to make a 20% down payment on a conventional loan. On a $350,000 home, that's $70,000 down. If you're close, consider waiting a few extra months to save the difference — the monthly PMI savings compound significantly over time.
Strategy 2: Choose a VA Loan (If Eligible)
VA loans offer the best deal: 0% down, zero monthly mortgage insurance, and competitive rates. The one-time funding fee is a fraction of what you'd pay in PMI or MIP over the years. If you're a veteran, active-duty service member, or qualifying National Guard/Reserve member, this should be your first option.
Strategy 3: Choose a USDA Loan (If Eligible)
For buyers in eligible rural and suburban areas with moderate incomes, the USDA loan offers 0% down with an annual guarantee fee of just 0.35% — the lowest ongoing cost of any mortgage insurance program. Check the USDA eligibility map for your property address.
Strategy 4: Use a Piggyback Loan (80/10/10)
Take a first mortgage for 80% of the home value (no PMI needed), a second mortgage (HELOC or home equity loan) for 10%, and put 10% down. The second mortgage has a higher rate but smaller balance. This can be cheaper than PMI if you pay off the second mortgage quickly.
Strategy 5: Ask for Lender-Paid Mortgage Insurance (LPMI)
The lender pays your PMI upfront in exchange for a higher interest rate (typically 0.25% to 0.50% higher than a standard rate). No monthly PMI payment, but you'll pay more in interest every month. Cann make sense if you plan to refinance or sell within 5-7 years before the higher rate costs more than PMI would have.
Strategy 6: Improve Your Credit Score
PMI rates are directly tied to credit scores. Improving from 680 to 760+ can cut your PMI rate nearly in half — from 0.90% to 0.50% on a 10% down conventional loan. On a $300,000 loan, that saves you $100/month, or $1,200/year. Work on your credit for 6-12 months before applying.
| Strategy | Down Payment Needed | Monthly MI | Trade-Off | Best For |
|---|---|---|---|---|
| 20% down | 20% | $0 | Requires large cash savings | Buyers with sufficient savings |
| VA loan | 0% | $0 | Must have military eligibility | Veterans and active military |
| USDA loan | 0% | $87/mo (declining) | Location and income limits | Rural/suburban buyers |
| Piggyback (80/10/10) | 10% | $0 on first, interest on second | Two payments, higher rate on second | Buyers who can pay second fast |
| LPMI | 3-5% | $0 (built into rate) | Higher permanent rate | Short-term owners (5-7 years) |
| Improve credit | 3-5% | Reduced (not eliminated) | Requires 6-12 months | Borrowers below 740 credit |
Which Mortgage Insurance Type Is Cheapest?
The answer depends on your specific situation, but here's the ranked order:
- 🥇 VA Loan
Lowest total cost: one-time funding fee (often $0 if disabled veteran), $0 monthly MI. If you're eligible, this is the undisputed winner.
- 🥈 USDA Loan
Lowest ongoing cost: 0.35% annual fee on declining balance. Upfront fee of 1% is moderate. Beat by VA only because of the upfront fee and life-of-loan duration.
- 🥉 Conventional Loan with PMI
PMI can be removed at 80% LTV, making it cheaper than FHA MIP for most borrowers with good credit. Best for buyers with 5-10% down and 720+ credit.
- 4. FHA Loan with MIP
Most expensive overall for long-term owners due to life-of-loan MIP (if under 10% down) plus the 1.75% upfront fee. Best only for borrowers with lower credit scores (580-640) who can't qualify for conventional.
Use our PMI calculator to compare costs across loan types with your specific numbers.
Frequently Asked Questions About Mortgage Insurance Types
Can I remove PMI from my conventional loan?
Yes, PMI on conventional loans can be removed. You have the right to request cancellation at 80% LTV (based on original value) under the Homeowners Protection Act. The lender must automatically terminate PMI at 78% LTV. You can also request removal earlier with a new appraisal if your home has appreciated significantly. This is a major advantage of conventional loans over FHA loans. See our complete PMI removal guide.
Is VA funding fee the same as PMI?
No. The VA funding fee is a one-time fee paid to the Department of Veterans Affairs, not an ongoing monthly premium like PMI. It can be financed into the loan amount. There is no monthly mortgage insurance on VA loans. The funding fee ranges from 1.25% to 3.3% depending on down payment and whether it's your first or subsequent use of the VA loan benefit. Veterans receiving VA disability compensation are exempt from the fee entirely.
Which mortgage insurance type is cheapest?
The USDA guarantee fee (0.35% annual) on a declining balance is typically the cheapest ongoing option. PMI rates range from 0.3% to 1.5% annually. FHA MIP ranges from 0.45% to 1.05% annually plus the 1.75% upfront premium. For eligible borrowers, VA loans are the most cost-effective overall since there's no monthly mortgage insurance — just the one-time funding fee. If you're eligible for VA, choose VA. If not but you're in an eligible area, choose USDA. Otherwise, compare conventional vs FHA based on your credit score and down payment.
How can I avoid paying mortgage insurance entirely?
The most common ways to avoid mortgage insurance are: (1) Make a 20% down payment on a conventional loan, (2) Use a VA loan if you're eligible (no monthly MI, just one-time funding fee), (3) Use a USDA loan in eligible rural areas (low annual fee, no PMI), (4) Use a piggyback loan structure (80/10/10), or (5) Accept a higher interest rate with lender-paid mortgage insurance (LPMI) — this eliminates the separate PMI line item but increases your permanent rate.
Does FHA MIP last the entire loan term?
It depends on your down payment. If you put down less than 10%, MIP lasts for the entire life of the loan — you cannot remove it without refinancing. If you put down 10% or more, MIP is removed after 11 years. This is a major disadvantage of FHA loans for borrowers with limited down payments. The only way to eliminate FHA MIP is to refinance into a conventional loan once you have 20% equity. Always factor this into your decision when comparing FHA vs conventional loans.
Conclusion: Know Your Insurance Before You Choose Your Loan
The type of mortgage insurance you pay is determined by the type of loan you choose — and that choice can cost or save you $10,000 to $50,000+ over the life of your loan. The key takeaways:
- If you're eligible for a VA loan, take it. Zero down, zero monthly MI, competitive rates. Nothing beats it.
- If you're in an eligible rural/suburban area with moderate income, consider the USDA loan. The 0.35% annual guarantee fee is the cheapest ongoing MI option.
- If you have 5-10% down and good credit (720+), conventional with PMI is usually best. You can remove PMI at 80% LTV, unlike FHA MIP.
- If you have a lower credit score (580-680) or limited savings, FHA may be your most accessible option — but plan to refinance to conventional once you build 20% equity to eliminate the life-of-loan MIP.
Whichever path you choose, use our PMI/MI calculator to estimate your actual costs across different loan types. A few minutes of comparison shopping could save you thousands of dollars in unnecessary mortgage insurance payments.
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