There are 4 types of private mortgage insurance
The type you choose determines how and when you pay
What is private mortgage insurance?
When you buy a home, you’ll pay for homeowners insurance to cover damage to your home from events like fires, windstorms, or theft. But you also may have to pay a second type of insurance: private mortgage insurance.
While homeowners insurance protects you and your home, PMI protects the lender should you default on your mortgage payments.
You’ll need PMI if you have less than 20% for a down payment on a conventional mortgage. The lower your down payment, the bigger risk the lender considers you to be. PMI helps offset that risk.
Keep in mind that PMI is only for conventional mortgages. This means you don’t need PMI if you have a government-backed loan — including an FHA, VA, or USDA loan.
Government-backed mortgages do come with their own costs, though. For example, FHA mortgages don’t charge PMI, but you will have to pay a different type of mortgage insurance premium that comes to 1.75% of your loan at closing. Then you’ll pay an annual premium of 0.45% to 1.05% of your mortgage.