Which type of loan often requires mortgage insurance regardless of the down payment amount?

FHA loans are designed to help borrowers with lower credit scores or limited savings to become homeowners. One of the key features of FHA loans is that they require mortgage insurance premiums for all loans regardless of the down payment amount. This includes both an upfront mortgage insurance premium (UFMIP) and an annual mortgage insurance premium (MIP) that is added to the monthly payment.

The requirement for mortgage insurance is essentially a way to protect lenders against potential losses in case the borrower defaults on the loan. This feature is crucial for FHA loans as they are intended to increase access to homeownership for individuals who might not qualify for conventional financing due to stricter credit requirements or those who are making a smaller down payment.

In contrast, conventional loans may not require mortgage insurance if the down payment is 20% or more, VA loans typically do not require monthly mortgage insurance premiums and instead use a funding fee, and USDA loans also provide options for financing that limit or eliminate the requirement for mortgage insurance if certain criteria are met.