Many people who are thinking about a mortgage ask how much is mortgage insurance and who needs it. If you are considering buying a home this may be something that you too will have to get but its not as complicated as it seems, and not everyone needs to get it. We’ll explain mortgage insurance, who needs it, and how much it costs as well as how to calculate it for your home loan so that you can make the best decision on how to proceed. Mortgage insurance isn’t that expensive regardless and we’ll cover how you can find out what yours will be.

First of all, who needs mortgage insurance? Generally, anyone who is putting a smaller down payment on their home will require mortgage insurance until they have enough equity built up in their home to surpass the required amount for obtaining mortgage insurance. Generally, that cut off point is 20 percent. That means that if you are putting twenty percent or more down, then you will not be required to obtain insurance for mortgages. If you are putting less than that down then you may have to pay monthly mortgage insurance.

To calculate how much is the mortgage insurance amount that you will have to pay, first determine how much will be left on your home after the down payment. For instance, if you are putting 5 percent down, then you will have 95 percent left over.  On a $200,000 home, this is $190,000. Next, you’ll have to ask your mortgage lender for the rate that applies to your specific amount. For our purposes let’s assume that the rate your lender has for 95 percent is .78. Each lender will have their own chart and rates will vary somewhat.

So, with a $200,000 home and five percent down, your amount left ($190,000) times by .78 percent, or .0078, is $1482. This is your annual mortgage insurance amount. To find out what you are going to be paying monthly, simply divide that amount by 12. Your monthly payment for mortgage insurance will be about $124 dollars a month. Remember, that this only has to be paid until you have enough equity built up to go over the 20 percent mark. Once you have twenty percent of more, $40,000 in this case, in equity in your home, you won’t be required to pay mortgage insurance.

As for how much is FHA mortgage insurance, this is based upon the rates set by the Federal Housing Authority on your FHA loan, but generally will not be more than .5 percent and may even be lower. Remember that you can avoid paying mortgage insurance altogether if you make a down payment that puts you over the cutoff mark for mortgage insurance. Ask your lender how you can avoid paying it, or if you have to, make a plan for getting rid of it as soon as possible and put the money into your home instead.