How to avoid mortgage insurance on FHA loan

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Make a 20% (or more) down payment: If you can afford to make a down payment of at least 20% of the home’s purchase price, lenders may waive the requirement for mortgage insurance. A larger down payment reduces the lender’s risk, making mortgage insurance unnecessary.

avoid mortgage insurance on FHA loan

Lender-Paid Mortgage Insurance (LPMI): Some lenders offer Lender-Paid Mortgage Insurance, where the lender pays the mortgage insurance premium in exchange for a higher interest rate on the loan. While you won’t have a separate mortgage insurance premium, you’ll likely end up paying for it through a higher interest rate over the life of the loan.

VA Loans: If you are a qualified veteran, active-duty service member, or a surviving spouse, you may be eligible for a VA (Veterans Affairs) loan. VA loans often do not require a down payment or mortgage insurance.

USDA Loans: The United States Department of Agriculture (USDA) offers loans for eligible rural and suburban homebuyers. USDA loans may not require a down payment, and the guarantee fee can be lower than traditional mortgage insurance.


Piggyback Loans: Another strategy is to take out two loans – one for 80% of the home’s value (avoiding mortgage insurance) and a second “piggyback” loan to cover the remaining amount. This second loan, often called a home equity line of credit (HELOC) or a home equity loan, can be riskier and may have a higher interest rate.

How to avoid mortgage insurance on FHA loan

Build Equity Quickly: If you start with a smaller down payment but the value of your home increases, you can reach the 20% equity threshold sooner. Once you have 20% equity, you can request the removal of mortgage insurance.

It’s essential to carefully review the terms and conditions of any loan arrangement to understand the overall costs and risks involved. Mortgage insurance, while an added cost, can sometimes be a necessary component to secure a loan, especially for borrowers with smaller down payments. Always consult with a mortgage professional to find the best solution based on your financial situation and goals. 

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