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When is mortgage insurance required?

Mortgage insurance exists to protect the lender in case a conventional loan defaults and is typically charged when your down payment is less than 20% of the home sale price.

Who typically has mortgage insurance

First-time home buyers who may not have accumulated significant money for a down payment are often required to have mortgage insurance.

If your down payment is low, your lender can charge mortgage insurance (often known as private mortgage insurance, or PMI) until your conventional loan balance is less than 80% of the original value. PMI payment options may vary among lenders. A common payment option is paying for the premium in equal monthly installments added to your monthly payment.

When your mortgage insurance drops off

Once PMI is set up with the mortgage loan, you will continue to pay PMI until the date your principal balance is scheduled to reach 78% of the home's original value, which is the lesser of sales price or appraised value. If you have been making regular, on-time payments, then the lender is required to terminate PMI at that time.

Additionally, under the Homeowners Protection Act, you are allowed to request canceling PMI when the principal balance falls below 80% of the home's value. However, you will need proof of the home's current value by way of an appraisal. Basically, once PMI is added to a mortgage loan, it's likely to be around for a while.

How to avoid mortgage insurance

The good news is that there are ways to avoid mortgage insurance, even if you have little to no down payment. Here are a couple of options:

  • Find a loan that doesn't charge PMI. Some lenders offer loans that waive PMI, such as BB&T's Community Homeownership Incentive Program (CHIP) loan.
  • Find a lender offering a combo loan. If you can put down 5 to 10%, a lender may be able to set up a first and second mortgage, decreasing your loan-to-value to an acceptable level that avoids PMI.
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For comparison purposes, a 30-year fixed rate mortgage of $200,000 with a 20% down payment at an APR of 4.199% with 0.125 discount points and a $895 origination fee with a credit score of 720 would result in 360 equal payments of $969.30. This payment does not include tax or insurance costs—the total payment obligation may be higher. This is a representative example based upon rates that were effective as of 10/24/17. Rates and programs may change at any time.

For comparison purposes, a 15-year fixed rate mortgage of $200,000 with a 20% down payment at an APR of 3.378% with 0.125 discount points and a $895 origination fee with a credit score of 720 would result 180 equal payments of $1,405.34. This payment does not include tax or insurance costs—the total payment obligation may be higher. This is a representative example based upon rates that were effective as of 10/24/17. Rates and programs may change at any time.

For comparison purposes, a 3-year adjustable rate mortgage of $200,000 with a 20% down payment at an APR of 4.101% with 0 discount points and a $895 origination fee with a credit score of 720 would result in 36 equal payments of $926.23 and 324 equal payments of $965.82. This payment does not include tax or insurance costs—the total payment obligation may be higher. This is a representative example based upon rates that were effective as of 10/24/17. Rates and programs may change at any time.

For comparison purposes, a 5-year adjustable rate mortgage of $200,000 with a 20% down payment at an APR of 4.052% with 0 discount points and a $895 origination fee with a credit score of 720 would result in 60 equal payments of $926.23 and 300 equal payments of $963.40. This payment does not include tax or insurance costs—the total payment obligation may be higher. This is a representative example based upon rates&mdash that were effective as of 10/24/17. Rates and programs may change at any time.

For comparison purposes, a 7-year adjustable rate mortgage of $200,000 with a 20% down payment at an APR of 4.020% with 0.125 discount points and a $895 origination fee with a credit score of 720 would result in 84 equal payments of $926.23 and 276 equal payments of $960.90. This payment does not include tax or insurance costs—the total payment obligation may be higher. This is a representative example based upon rates that were effective as of 10/24/17. Rates and programs may change at any time.

For comparison purposes, a 10-year adjustable rate mortgage of $200,000 with a 20% down payment at an APR of 4.110% with 0 discount points and a $895 origination fee with a credit score of 720 would result in 120 equal payments of $954.83 and 240 equal payments of $965.24. This payment does not include tax or insurance costs—the total payment obligation may be higher. This is a representative example based upon rates that were effective as of 10/24/17. Rates and programs may change at any time.

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