Mortgage Insurance Requirements For California Home Loans

When buying a home in California, first-time home buyers often learn quite a bit about the “hidden” details of home loans.

Some concepts are universal, whether you want a home in San Diego or New York City, many of these learning experiences apply cross-country.

One of those details involves mortgage insurance. Some home loans require mortgage insurance as a way to protect the lender’s interest in case of loan default and foreclosure. Other loan programs don’t require mortgage insurance, but this isn’t common. California house hunters should know about the following:

Conventional Loan Mortgage Insurance

In general, conventional home loans in California and elsewhere require mortgage insurance when the borrower pays less than 20% as a down payment. Rules vary from lender to lender, but the “20% rule” is safe to assume in most cases. The mortgage insurance premium is added to the mortgage.

VA Loan Mortgage Insurance Rules

VA loans are unique because of the program’s stance on mortgage insurance. The Phoenix VA Regional Loan Center, which has jurisdiction over all California VA home loans, says the following on its official site:

“Reasons to obtain a VA-Guaranteed Loan:

No down payment
No monthly mortgage insurance premium”

The VA views private mortgage insurance as redundant, as it is already insuring the mortgage for the lender. Therefore, VA loan rules don’t permit a lender to require mortgage insurance as an extra expense to the borrower. VA loans feature a no down payment option and when you compare zero money down AND the no-mortgage-insurance features, it’s easy to see why qualified vets prefer VA home loans over their conventional counterparts.

FHA Loan Insurance

FHA loan rules state the following about mortgage insurance:

“In most of the FHA mortgage insurance programs, FHA collects an

• up front mortgage insurance premium (UFMIP), and 
• annual insurance premium, which is collected in monthly installments.”

The rules also say most FHA home loans require an Up Front Mortgage Insurance Premium (UFMIP), which varies “by program and outstanding principal balance.” FHA mortgage insurance is usually cancelled automatically for loans issued today once the loan-to-value ratio reaches 78% and other conditions are met based on the type of loan. FHA loan rules say such mortgage insurance cancellation only applies to loans with a UFMIP.

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