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Does a USDA loan require Private Mortgage Insurance?

August 21st, 2020 by Sean Stephens

Does a USDA loan require Private Mortgage Insurance?There are key terminology differences between USDA, FHA, and Conventional mortgages. This includes the topic of Private Mortgage Insurance.

In today’s video, I will break down the differences in terminology, compare how various costs are calculated, and explain whether or not USDA loans have PMI or anything similar.

Please also download our USDA Blueprint for Success. This free guide is a great resource to walk you step by step through the USDA qualifying process.

What is Private Mortgage Insurance?

Private Mortgage Insurance (PMI) exists on conventional loans with less than 20% down payment. Additionally, PMI has a variety of payment options and how it can be structured.

Also, under the Homeowner’s Protection Act, PMI can be terminated either by request or automatically when the balance is paid down to or below 80% of the original home value.

Does a USDA loan require Private Mortgage Insurance?FHA Mortgage Insurance Premium

Now, FHA loans have what’s called mortgage insurance premium (MIP). It’s a monthly fee that is required for the life of the loan when you have less than 10% down payment.

On the other hand, with a down payment of 10% or greater, the MIP will be removed after 11 years.

USDA Annual Fee

In the case of a USDA Loan, they don’t technically have private mortgage insurance. Instead, they have an annual fee.

Even though the USDA annual fee is for the life of the loan, it’s over 2X lower than FHA mortgage Mortgage Insurance!

Here’s an example to help show you the difference:

FHA: .85% X $100,000 = $850 / 12 = $70.83 per month

USDA: .35% X $100,000 = $350 / 12 = $29.17 per month

Better Borrowing Costs

Does a USDA loan require Private Mortgage Insurance?

USDA loans allow for no down payment and they have better borrowing costs when compared to FHA loans.

Plus, don’t forget that USDA closing costs can be financed within the loan when the appraised value is higher than your purchase price. This does not occur with FHA loans.

Whether it be FHA, VA, USDA, or Conventional – Just call or email to discuss your scenario and let us show you the “Metroplex” difference.

800-806-9836 Ext. 280
SeanS@MPLX.org

I want everyone to make it a great day, and look forward to seeing you right here for the next tip of the week!

P.S. – Go here to download our FREE USDA Blueprint for Success!

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