Mortgage insurance, (sometimes called private primary mortgage insurance, private mortgage insurance, or PMI) protects the lender in the event that you default on the loan. If you put less than 20 percent down on the purchase of your property, you could be required to pay for mortgage insurance in addition to your mortgage payment. The premium is typically added to your monthly mortgage payment as part of your principal, interest, taxes, and insurance (PITI). The less you put down, the higher the monthly premium. Conversely, the more you put down, the lower the premium.

First-time home buyers with limited income are often shocked by the monthly cost of mortgage insurance. To help, mortgage insurance companies have come up with a couple of ways to take the sting out of the PMI premium.

Lender paid mortgage insurance

Mortgage insurance companies give a discounted rate for lender paid mortgage insurance. The lender pays the entire amount up-front and passes the cost on to the borrower through a higher interest rate. Even with this higher interest rate, the borrower's monthly payment is often lower than options where the borrower pays monthly mortgage insurance in addition to their mortgage payment. 

Financed/borrower paid mortgage insurance

A one-time private primary mortgage insurance premium is added to the amount of the first mortgage resulting in a slightly higher mortgage payment, but this is still a considerable cost savings over making the mortgage insurance payments separately. These loans often include loan-to-value ratios over 100 percent; however, the mortgage, including financed mortgage insurance, is fully insured by mortgage insurance companies. Borrowers retain the option to cancel mortgage insurance according to lender guidelines and receive a refund for the unamortized portion. Lower monthly payments allow borrowers access to a higher mortgage or more expensive home.

Government insurances

While shopping for a mortgage, you may hear about federal mortgage insurance programs that offer lower down payment requirements than conventional mortgage products. Most of these programs are targeted to low- and moderate-income buyers, and they are offered directly through your lender. Your lender will underwrite, process, and close your loan, which is then insured by the specific government program. Here are a few government insurance programs you should ask about:

Federal Housing Administration (FHA): A federal agency within the Department of Housing and Urban Development (HUD) that provides mortgage insurance for residential mortgages and sets standards for construction and mortgage underwriting. 

Veterans Administration (VA): A federal agency that, among other things, helps eligible veterans purchase housing at an affordable interest rate and term with low mortgage insurance premiums.   

USDA-Rural Development (USDA-RD): A federal agency that offers 100 percent financing to low- and very low-income individuals who are purchasing, building, or improving homes in rural areas.

If your loan requires mortgage insurance, generally, you can remove the insurance in two ways: first, you can request the insurance be removed when you feel that your equity in the home has reached 20 percent of the original value. Be sure to ask your lender before you close about restrictions or exceptions to removing mortgage insurance this way. The second way PMI can be removed is by paying down your loan. Once you have reached 22 percent equity in your home, based on the original value, the lender must automatically remove the insurance. You must be current on your loan and in good standing with the lender for them to remove PMI from your loan.

New Hampshire Housing loans can be insured by Federal Housing Administration (FHA), Veterans Administration (VA), USDA - Rural Development  (RD) and/or other private mortgage insurance companies.