Mortgage insurance is one of the biggest hidden costs buyers overlook, and it works differently depending on your loan. PMI, MIP, and the VA funding fee are three different animals. Here is how each one works so there are no surprises.
Three forms of protection
Mortgage insurance protects the lender, not you, against default — and it is usually required when your down payment is small or the loan is government-backed. The three main types behave very differently, so knowing which applies to your loan helps you compare total cost.
PMI on conventional loans
- Required when you put down less than 20% on a conventional loan.
- Paid monthly (and sometimes upfront).
- Can be cancelled once you reach enough equity.
- Cost depends on your down payment and credit.
MIP on FHA loans
FHA loans carry a mortgage insurance premium, usually an upfront amount plus an annual premium paid monthly. On many FHA loans the annual MIP lasts the life of the loan, which is a key difference from PMI. Some buyers refinance into a conventional loan later to drop MIP.
The VA funding fee
VA loans have no monthly mortgage insurance. Instead, most carry a one-time funding fee that can be financed into the loan, and many veterans — for example, many with a service-connected disability rating — are exempt. This is a major reason VA loans can be so competitive.
Quick comparison
| Loan | Insurance type | Cancellable? |
|---|---|---|
| Conventional (<20% down) | PMI, monthly | Yes, with enough equity |
| FHA | MIP, upfront + annual | Often life of loan |
| VA | One-time funding fee | N/A (no monthly MI) |
Why it matters to your budget
- Compare the full monthly cost, not just the rate.
- Factor in whether the insurance is cancellable.
- Consider a future refinance to remove MIP.
- Confirm VA exemption status if you are a veteran.
Frequently Asked Questions
What is the difference between PMI and MIP?
PMI is private mortgage insurance on conventional loans with less than 20% down, and it can be cancelled once you reach enough equity. MIP is the FHA mortgage insurance premium, with an upfront amount plus an annual premium that on many loans lasts the life of the loan. PMI is cancellable; FHA MIP often is not.
Does a VA loan have mortgage insurance?
No monthly mortgage insurance applies to VA loans. Instead, most carry a one-time funding fee, which can be financed into the loan, and many veterans are exempt — for example, many with a service-connected disability rating. The absence of monthly insurance is a major reason VA loans can be very competitive.
Can I cancel PMI?
Yes. PMI on a conventional loan can be cancelled once you reach enough equity, either by paying down the balance or as your home appreciates. There are specific rules and thresholds for requesting or automatically terminating PMI. Confirm the process and current requirements with your loan servicer when you approach the equity threshold.
Why does FHA mortgage insurance last so long?
On many FHA loans, the annual MIP lasts the life of the loan by design, unlike cancellable conventional PMI. This is a key trade-off for FHA's flexibility on credit and down payment. Some buyers refinance into a conventional loan once they have enough equity to remove MIP. Confirm your loan's specific terms.
How much does mortgage insurance cost?
It varies by type, your down payment, credit, and loan size, so there is no single figure. PMI and FHA MIP are typically expressed as annual percentages paid monthly, and the VA funding fee is a one-time percentage. Get exact figures on your Loan Estimate and compare the full monthly cost across loan types.
Which loan avoids monthly mortgage insurance?
VA loans avoid monthly mortgage insurance entirely, using a one-time funding fee instead. Conventional loans avoid PMI if you put down 20% or more. FHA loans generally carry MIP for the life of the loan. If avoiding monthly insurance matters, compare VA eligibility and a 20%-down conventional option with a lender.
