How Mortgage Insurance Coverage Requirements Work
When you put down less than 20% on a conventional loan, you need private mortgage insurance. Fannie Mae sets specific coverage requirements based on your loan-to-value ratio, loan type, and property type. The coverage percentage determines how much of your loan balance the insurance company will pay if you default.
Say you're buying a $400,000 home with 10% down. Your loan amount is $360,000, giving you a 90% LTV ratio. For a standard fixed-rate loan, Fannie Mae requires either 25% standard coverage or 12% minimum coverage with an additional pricing adjustment.
The coverage percentage matters because it affects your monthly premium. Higher coverage percentages typically mean higher monthly costs, but they also provide more protection to the lender, which can influence loan approval and pricing.
Standard vs. Minimum Coverage Options
Fannie Mae offers two coverage levels for most loan types. Standard coverage represents the typical requirement for each LTV range. Minimum coverage allows lower percentages but comes with a loan-level pricing adjustment that increases your interest rate or closing costs.
For an 85% LTV conventional loan, standard coverage is 25% while minimum coverage is 6%. If you choose the minimum coverage, you'll pay an additional LLPA based on your credit score and LTV ratio. This LLPA appears in Fannie Mae's pricing matrix and gets added to any other pricing adjustments on your loan.
The choice between standard and minimum coverage often comes down to monthly payment preferences. Minimum coverage reduces your monthly mortgage insurance premium but increases your interest rate through the LLPA.
Coverage Requirements by LTV Range
The coverage requirements increase as your down payment decreases. Here's how it breaks down for conventional loans on standard property types:
- 80.01% to 85% LTV: 6% minimum, 25% standard
- 85.01% to 90% LTV: 12% minimum, 35% standard
- 90.01% to 95% LTV: 16% minimum, 30% standard (with LLPA for minimum)
- 95.01% to 97% LTV: 18% minimum, 35% standard (with LLPA for minimum)
For the higher LTV ranges above 90%, even the minimum coverage options trigger the mortgage insurance LLPA. This reflects the increased risk associated with very low down payments.
HomeReady Mortgage Coverage Rules
HomeReady mortgages follow different coverage requirements that are generally more favorable than conventional loans. The standard coverage percentages are lower across most LTV ranges, making the monthly mortgage insurance more affordable.
A HomeReady borrower with 90% LTV pays 25% standard coverage compared to 35% for a conventional loan. At 95% LTV, HomeReady maintains 25% standard coverage while conventional loans jump to 30%.
The minimum coverage options for HomeReady loans mirror conventional loans, but the LLPA applies regardless of any LLPA limits that might exist for other loan features. This means you can't avoid the mortgage insurance LLPA by staying under overall pricing adjustment caps.
Manufactured Housing Coverage Requirements
Standard manufactured homes (not MH Advantage properties) have their own coverage requirements and don't qualify for loans above 95% LTV. The coverage percentages are lower than site-built homes, reflecting different risk profiles.
For manufactured homes, coverage ranges from 6% minimum to 30% standard at the highest LTV ratios. HomeReady manufactured home loans top out at 25% standard coverage, providing some benefit over conventional manufactured home financing.
MH Advantage properties follow the same coverage requirements as standard site-built homes, giving you access to the full range of LTV ratios and coverage options.
How Lenders Apply These Requirements
Your lender will determine which coverage level to use based on your loan application and their business model. Some lenders default to standard coverage to avoid the LLPA, while others offer minimum coverage as an option to reduce monthly payments.
The mortgage insurance company sets the actual premium rate based on the coverage percentage, your credit score, LTV ratio, and other risk factors. Fannie Mae's requirements establish the minimum coverage, but the insurance company determines the cost.
When you're shopping for loans, ask lenders about both coverage options and how they affect your monthly payment versus interest rate. The total cost over the life of the loan can vary significantly between the two approaches.
What Documents You'll Need
You don't need to provide specific documents for mortgage insurance coverage requirements. Your lender handles the coverage determination and insurance application based on your loan details.
However, the coverage requirements will appear in your loan estimate and closing disclosure. Review these documents to confirm the coverage percentage and monthly premium amount match what your lender quoted.
If you're considering minimum coverage with an LLPA, make sure you understand how this affects your interest rate and total loan costs compared to standard coverage options.
Common Issues and Complications
The biggest confusion arises when borrowers don't understand the difference between coverage percentage and premium rate. The coverage percentage determines how much the insurance company pays if you default, while the premium rate determines your monthly cost.
Some borrowers assume minimum coverage always saves money, but the LLPA can make it more expensive over the loan's life. Run the numbers on both options before deciding.
For loans that combine multiple programs, like HomeReady with HomeStyle Renovation, the HomeReady coverage requirements apply. This can create unexpected premium calculations if you're not prepared for the program interaction.
Manufactured home borrowers sometimes get surprised by the lower maximum LTV ratios. Standard manufactured homes can't exceed 95% LTV, which limits your financing options compared to site-built properties.
References
For the official guidelines, see B7-1-02: Mortgage Insurance Coverage Requirements in the Fannie Mae Selling Guide.
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Original Fannie Mae Guideline Text
B7-1-02, Mortgage Insurance Coverage Requirements (08/07/2019)
Mortgage Insurance Coverage Requirements
The table below provides the mortgage insurance coverage requirements for first–lien mortgages. For certain transactions, Fannie Mae offers two mortgage insurance coverage level options: standard coverage for the transaction type (noted with ^) and minimum coverage (noted with *) with corresponding LLPAs. Lenders who choose less than standard coverage (but no lower than minimum coverage) will be assessed an LLPA based on the LTV ratio and representative credit score for the mortgage loan. The minimum mortgage insurance LLPAs can be found in the Loan-Level Price Adjustment (LLPA) Matrix, and are in addition to any other LLPAs that may apply to the transaction.
Mortgage Insurance Coverage Requirements
80.01 – 85.00%
85.01-90.00%
90.01-95.00%
95.01-97.00%
All property types (including MH Advantage) other than standard manufactured homes
Fixed-rate,
6%
12%
16%* + MI LLPA
18%* + MI LLPA
25%^
35%^
Fixed-rate,
6%* + MI LLPA
12%* + MI LLPA
16%* + MI LLPA
18%* + MI LLPA
12%^
25%^
30%^
35%^
HomeReady mortgages: Fixed-rate,
6%
12%
16%* + MI LLPA
18%* + MI LLPA
25%^
25%^
HomeReady mortgages: Fixed-rate,
6%* + MI LLPA
12%* + MI LLPA
16%* + MI LLPA
18%* + MI LLPA
12%^
25%^
25%^
25%^
Standard manufactured homes (not MH Advantage)
6%* + MI LLPA
12%* + MI LLPA
16%* + MI LLPA
12%^
25%^
30%^
6%* + MI LLPA
12%* + MI LLPA
16%* + MI LLPA
12%^
25%^
25%^
The following additional requirements apply:
Mortgage insurance requirements for HomeReady apply when HomeReady and HomeStyle Renovation are combined.
The minimum levels (*with an LLPA) are eligible for HomeReady mortgages as indicated; however, the mortgage insurance LLPA will be assessed in all cases regardless of any LLPA limits.
See B7-1-04, Financed Borrower-Purchased Mortgage Insurance, for additional information about mortgage insurance coverage for financed mortgage insurance transactions.
