When You Need Mortgage Insurance
If you put down less than 20% on a conventional loan, you need private mortgage insurance. Fannie Mae requires this protection when the loan-to-value ratio exceeds 80% at the time they purchase your loan from the lender. The LTV calculation depends on your loan type. For purchase loans, lenders use the lower of the sales price or appraised value. If you're buying a $400,000 home that appraises for $380,000, they use $380,000 as the value. A $320,000 loan amount would create an 84% LTV ratio, triggering the mortgage insurance requirement. For refinance loans, lenders can use an appraisal, automated valuation model, or other acceptable method to determine your home's current value. The specific method depends on your loan program and lender requirements.
Which Mortgage Insurers Work with Fannie Mae
Not every mortgage insurance company can insure loans that Fannie Mae will purchase. Lenders must use approved mortgage insurers that meet Fannie Mae's Qualified Mortgage Insurer Approval Requirements. Your lender handles this selection process. They maintain relationships with approved insurers and choose which company will provide your coverage. You don't get to shop for mortgage insurance companies yourself. The insurance policy forms matter too. Fannie Mae maintains a list of approved policy forms for each insurance provider. Your lender must use these specific forms, not custom agreements or older policy versions.
Special Rules for New York Properties
New York State has unique mortgage insurance requirements that affect how lenders calculate your LTV ratio. These rules stem from state insurance regulations that define "fair market value" differently than Fannie Mae's standard approach. For most properties in New York, mortgage insurers must base coverage on the appraised value only, not the lower of sales price or appraised value. This can work in your favor if you're buying below appraised value. Co-op properties follow different rules. For purchases, the LTV calculation uses the sales price of your ownership interest and proprietary lease. For refinances of co-op share loans, lenders use the appraised value. Some mortgage insurance policies in New York use Fannie Mae's standard LTV calculation (lower of sales price or appraised value). Your lender will determine which approach applies to your specific situation and insurance policy.
How You Pay for Mortgage Insurance
You have several options for paying mortgage insurance premiums, though your lender and the insurance company determine which plans are available for your loan. Monthly premium plans are most common. You pay no upfront premium at closing, but monthly premiums get added to your mortgage payment. Your lender collects these payments in escrow and forwards them to the insurance company. Annual premium plans require an upfront payment at closing to cover the first year, then annual renewals paid from your escrow account. Single-premium plans let you pay the entire premium upfront at closing for coverage that lasts the life of your loan. Split-premium plans combine an upfront payment with ongoing monthly premiums. This reduces your monthly payment compared to a monthly-only plan while keeping your closing costs lower than a single-premium option.
What Documents Your Lender Needs
Your lender must obtain and maintain evidence of your mortgage insurance coverage. This includes the insurance policy, any endorsements, and proof of premium payments. You don't need to provide these documents yourself. The lender coordinates directly with the mortgage insurance company to obtain the policy and maintain the required documentation. The lender must also verify that your loan meets the insurer's underwriting standards. This means your loan file must be complete and accurate, with no misrepresentations that could give the insurance company grounds to deny a future claim.
When Mortgage Insurance Gets Complicated
Timing matters for policy approval. If your loan application date was October 1, 2014 or later, the insurance must use current Fannie Mae-approved forms. Older applications may use pre-existing forms if the lender confirms they were approved at the time. Your loan must be "insurable" under Fannie Mae standards. This means the mortgage insurance company would not decline coverage due to fraud, misrepresentation, negligence, or other problems in how the loan was originated or serviced. Lenders cannot modify the standard mortgage insurance policy terms for loans going to Fannie Mae. They cannot enter side agreements that limit the insurer's right to investigate claims, rescind coverage, or conduct file reviews. Some lenders have captive reinsurance arrangements with mortgage insurers. These may be acceptable as long as they don't affect Fannie Mae's interests or modify the standard policy terms.
Why These Rules Exist
Fannie Mae's mortgage insurance requirements protect both the company and the broader mortgage market. When borrowers default on high-LTV loans, mortgage insurance covers Fannie Mae's losses, reducing the risk of purchasing these loans. The approved insurer requirement ensures that insurance companies meet financial strength and operational standards. This reduces the risk that an insurer will fail to pay claims when needed. Standardized policy forms prevent lenders and insurers from creating agreements that could undermine coverage. Without these restrictions, side deals might leave Fannie Mae exposed to losses that should be covered by insurance. The insurability requirement protects against loans with origination problems that could void insurance coverage. If a loan has fraud or misrepresentation issues, the insurance company might deny claims, leaving Fannie Mae to absorb the full loss.
References
For the official guidelines, see B7-1-01: Provision of Mortgage Insurance in the Fannie Mae Selling Guide.
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Original Fannie Mae Guideline Text
B7-1-01, Provision of Mortgage Insurance (04/02/2025)
Use of Approved Forms
LTV Ratio Determination in New York State
Mortgage Insurability
Prohibition of Certain Mortgage Insurance Agreements
General Requirements
Lenders must ensure that any mortgage insurance Fannie Mae requires for a mortgage loan is in place. Lenders must obtain and be able to produce evidence of any required mortgage insurance or loan guaranty.
Unless the lender has provided another charter-compliant form of credit enhancement, the lender must obtain a primary mortgage insurance policy for a conventional first mortgage loan that has an LTV ratio greater than 80% at the time it is purchased for Fannie Mae’s portfolio or securitized. (For this purpose, the LTV ratio is calculated based upon the unpaid principal balance of the mortgage loan at the time it is purchased or securitized by Fannie Mae.)
For a purchase money loan, the value used in determining the LTV ratio is the lower of the sales price or the appraised value of the security property.
For a refinance loan, the value used in originating the loan can be derived from an appraisal, AVM, or other acceptable method.
Conventional mortgages may be insured by private mortgage insurers or state or local insuring agencies that have been approved under Fannie Mae’s Qualified Mortgage Insurer Approval Requirements to insure loans sold to or serviced for Fannie Mae. For a listing of the eligible conventional mortgage insurers and their associated mortgage insurance codes, see Approved Mortgage Insurers and Related Identifiers. The website is the definitive source for approved mortgage insurers.
The form of mortgage insurance policy, including any endorsements, must be acceptable to Fannie Mae.
Use of Approved Forms
Lenders are responsible for ensuring that only Fannie Mae-approved mortgage insurance forms and related endorsements and other forms (Forms) are used in connection with individual loans sold to or securitized by Fannie Mae. These Forms provide the terms of mortgage insurance coverage on individual loans. A list of Fannie Mae-approved Forms for each insurance provider is available on Fannie Mae’s website – see Approved Mortgage Insurance Forms.
Any mortgage loan sold to or securitized by Fannie Mae that requires primary mortgage insurance (or is delivered with primary mortgage insurance even though not required) and has a loan application date on or after October 1, 2014, must be insured under one of the Fannie Mae-approved Forms. If such loan is insured under any pre-existing forms or agreements between lenders and mortgage insurers, the loan is not eligible for sale to Fannie Mae, and is subject to repurchase if identified after acquisition by Fannie Mae.
Any mortgage loan sold to or securitized by Fannie Mae that requires primary mortgage insurance (or is delivered with primary mortgage insurance even though not required) and has a loan application date prior to October 1, 2014, may be insured under either
one of the Fannie Mae-approved Forms; or
any pre-existing forms and agreements between lenders and mortgage insurers, as long as the lender first confirms with the mortgage insurer that such forms and agreements were approved by Fannie Mae for use at the time of the loan application date.
LTV Ratio Determination in New York State
Under a New York statute, a mortgage insurer must issue mortgage insurance based on a determination of the “fair market value” of the property. The term “fair market value” is not defined in the statute, but has been defined by the New York insurance regulator as being the “appraised value.” Per the statute, for co-op properties, the issuance of mortgage insurance must be based on the “purchase price of the ownership interest and the proprietary lease.”
As a result, the determination of value for properties in New York is different from Fannie Mae’s standard definition of value that is used to calculate the LTV ratio. The following table identifies the value calculation that is to be used for mortgage loans secured by properties in New York for policies that are based on the LTV ratio.
Policy
LTV ratio based on the appraised value for non-co-op properties
LTV ratio based on the sales price for co-op properties
then mortgage insurance must not be placed on the loan.
LTV ratio based on the appraised value for refinances of co-op share loans
LTV ratio based on the lower of the sales price or appraised value (standard LTV ratio calculation) for all property types
Payment of Mortgage Insurance Premiums
Premium plans for mortgage insurance may be:
monthly plans – monthly premiums from accumulated escrow deposits (with no initial payment at closing),
annual plans – an initial payment at closing to cover the first year's premium and annual renewal premiums thereafter paid from accumulated escrow deposits,
single-premium plans – lump-sum premium at closing to purchase life-of-the-mortgage coverage, or
split-premium plans – an initial payment at closing and an ongoing monthly premium from accumulated escrow deposits.
Mortgage Insurability
Each loan a lender delivers to Fannie Mae must be insurable. A mortgage is insurable if a mortgage insurer would not decline to insure it by reason of any fraud, misrepresentation, negligence, or dishonest, criminal, or knowingly wrongful act in origination or servicing, and would not be entitled to deny a claim by reason of any of the foregoing.
Prohibition of Certain Mortgage Insurance Agreements
Fannie Mae prohibits lenders from entering into any agreement that modifies the terms of an approved mortgage insurance master policy on loans delivered to or intended for delivery to Fannie Mae. Prohibited agreements include, but are not limited to, agreements that directly or indirectly:
modify master policy provisions for settling of claims,
limit the right of a mortgage insurer to conduct file reviews or investigate claims,
limit the right of a mortgage insurer to rescind coverage,
rescind or modify coverage, or
restrict notice to Fannie Mae of changes in coverage status.
Further, Fannie Mae prohibits loss sharing, indemnification, settlement, or similar agreements of any kind between lenders and mortgage insurance companies that affect Fannie Mae's interest in its mortgage loans or modify the terms of an approved mortgage insurance master policy on loans delivered to or intended for delivery to Fannie Mae. Traditional captive reinsurance arrangements between a mortgage insurance company and a licensed insurer or reinsurer may be permissible so long as they do not:
affect Fannie Mae's interest in its mortgage loans, or
modify the terms of an approved mortgage insurance master policy on loans delivered to or intended for delivery to Fannie Mae.
