Comparing Different Types of Mortgage Insurance: What Every Buyer Needs to Know?

When you’re in the market to buy a home, you’ll hear a lot about interest rates, credit scores, and closing costs. But one often-overlooked expense? Mortgage insurance - and trust us, it can make or break your monthly budget.

Let’s break down what mortgage insurance is, why you might need it, and most importantly, how to avoid paying more than you should.

• Mortgage insurance isn't one-size-fits-all - know the difference between PMI, MIP, and lender-paid options.
• Your loan type, down payment, and credit profile determine what type of insurance you’ll need.
• Learn how to potentially cancel PMI, manage FHA's MIP, or evaluate lender-paid mortgage insurance.
• Discover tools and platforms that help reduce or avoid extra costs in your homebuying journey.

Mortgage insurance protects lenders, not borrowers. It kicks in when there’s a higher risk, like when a buyer puts less than 20% down. That doesn’t mean it’s bad; it’s a tool that lets buyers become homeowners sooner. But it’s crucial to understand how it works.

There are several types:

• PMI (Private Mortgage Insurance): Used with conventional loans.
• MIP (Mortgage Insurance Premium): Required for FHA loans.
• Lender-Paid Mortgage Insurance (LPMI): Where the lender covers the cost upfront, but you pay a higher interest rate.

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Heads up: Each comes with different rules, costs, and cancellation policies.

If you're getting a conventional loan, PMI will likely be part of your monthly payment - unless you're putting 20% or more down.

• The monthly premium varies based on credit score, loan size, and down payment.
• Usually ranges from 0.3% to 1.5% of the loan annually.
• Can be canceled once your loan-to-value (LTV) drops below 78%.

Pro Tip: If your home appreciates quickly, or you make extra payments, request a new appraisal and ask your lender to cancel PMI early.

FHA loans require MIP, and unlike PMI, it’s not as easy to remove.

• Upfront Premium: 1.75% of the loan amount (rolled into the loan or paid at closing).
• Annual Premium: Typically 0.45%–1.05% of the loan amount (paid monthly).

MIP lasts for the life of the loan if your down payment is under 10%. To eliminate MIP, you’ll likely need to refinance into a conventional loan later on.

With LPMI, the lender pays the insurance, but raises your interest rate to offset the cost.

• No separate monthly PMI line item.
• Potentially better for buyers who plan to sell or refinance within a few years.

• Higher interest rate = higher total cost over time.
• Can’t cancel - the only way out is refinancing.

Always ask for a side-by-side comparison with traditional PMI to decide if LPMI makes sense for your situation.

• Loan amount & term
• Credit score
• Down payment percentage
• Loan type (Conventional vs. FHA)

Using tools offered by realpha can give you a realistic monthly breakdown and even help you buy a home commission-free.

• Put 20% down if possible
• Consider piggyback loans (80/10/10)
• Refinance when your home gains equity
• Track your LTV ratio and request PMI cancellation at 80%
• Use a buyer-first homebuying platform like reAlpha, where transparency meets serious savings.

Buying a Home? Get up to 1.5% Cash Back at Closing

Get pre-approval first, then start exploring homes knowing you can receive up to 1.5% of the home price back at closing.

Find your dream home

Buying a home is a big decision - and having the right information puts you ahead. But the real advantage comes from pairing smart research with a smarter way to buy.

When you use a reAlpha real estate company, you can be eligible to receive up to 1% of the home purchase price back as a credit at closing. Add reAlpha Mortgage, and that rebate can increase to up to 1.5% back, helping offset closing costs and keep more money in your pocket when it matters most.

The rebate is simple, transparent, and applied directly at closing - no complicated hoops, no delayed payouts. Just real savings tied to using a fully integrated homebuying experience.

See how much you could save:

• Check your eligibility
• Explore homes that fit your budget today.
• Your next move could come with thousands back at closing.

Estimate your savings → Rebate Calculator