What it is, and what it costs you
Private mortgage insurance protects the lender, not you, against the loss if a loan with a small down payment goes bad. You pay for it anyway, usually as a line on the monthly payment. What it costs depends mostly on two things: how much you put down and your credit score. A borrower with a high score and 15 percent down can pay a fraction of what a borrower with a modest score and 3 percent down pays for the same loan.
That is the first difference from FHA. FHA charges everyone above a given loan-to-value the same premium regardless of credit, and on a loan with less than 10 percent down that premium runs for the life of the loan.1 Conventional mortgage insurance is priced to the borrower, and it is built to come off.
Three ways it ends
Once your balance reaches 80 percent of what the house was worth when you bought it — on schedule, or sooner because you paid extra — you can ask your servicer in writing to cancel it.2,3 You need a clean recent record: current when you ask, nothing 30 days late in the last year, and nothing 60 days late in the last two.3
If you never ask, it has to stop automatically when the balance is scheduled to hit 78 percent of the original value, provided you are current. And if the loan somehow never reaches 78 percent on schedule, it stops at the halfway point of the term regardless.2,3
This is the one most people miss. The first two are measured against the original value. If your home has appreciated, you can ask for cancellation based on what it is worth now, usually with a new appraisal. On a loan Fannie Mae owns, the balance needs to be 75 percent or less of current value if the loan is two to five years old, or 80 percent or less after five years.3 Improvements you made that added value can shorten the wait.3
In a market where prices have risen, this can take mortgage insurance off years earlier than the schedule would. It costs an appraisal and a letter.
The kind that never comes off
Some lenders offer lender-paid mortgage insurance: no separate premium on your statement, in exchange for a higher interest rate. It can be the cheaper choice if you expect to sell or refinance within a few years. But there is no premium to cancel — the cost is in the rate, and the rate does not change when you reach 78 percent. On a loan you plan to keep, paying the premium yourself and having it come off is usually worth more.
We price both when it is close, and show you the month where one overtakes the other.
When FHA still wins
Not always, but sometimes: when the credit score is modest enough that private mortgage insurance is priced punitively, FHA’s flat premium can be cheaper at the start even though it lasts longer. That comparison has its own page — FHA or conventional — and it is worth running on your real numbers rather than on a rule of thumb.
Sources
These references support the factual explanations above. Where this page states a preference rather than a fact, it says so — those are our editorial judgement, not a claim that any one channel always costs less.
Next
Three percent down on a conventional loanNot only FHA. Who qualifies, the income limits, and the pricing waiver most buyers never hear about.FHA or conventional?Neither one always wins. The mortgage insurance rules decide most of it.Priced against your actual file
Mortgage insurance, loan-level adjustments and the loan limit all turn on your own numbers, and so does whether conventional or FHA comes out cheaper. Send us the basics and we’ll price both — no credit pull, and it commits you to nothing.