Why is insurance more on a FHA than a USDA loan?

Asked by Jennifer Sumerlin, Greenville, NC Wed Sep 4, 2013

I got a independent quote from my insurance company for home insurance for the house we are buying. They never asked me what type of loan we were getting. Our original USDA loan seems to be falling through because there is a pool, so we are forced to switch to FHA. Our lender informed us that the home insurance on a FHA loan is more than what it would have been with the USDA loan. Why is this? The house value is the same no matter how it's paid for!

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15
Kathy Lewis, , Valdosta, GA
Tue Nov 10, 2015
likely referring to monthly MI. Yes, the USDA loan is lower, by nearly 40%.

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0 votes
, ,
Sat Sep 7, 2013
I agree with others, the loan officer said mortgage insurance, you heard home owner’s insurance.

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0 votes
Evelyn S. Fr…, Agent, Chicago, IL
Sat Sep 7, 2013
Totally agree there is a misundertanding here...the mortgage insurance is is higher with an FHA not the property/home insurance.

Double check with your HOME insurance agent.

Good luck!
0 votes
Bill J Delig…, Agent, Naperville, IL
Wed Sep 4, 2013
The Home Owner's Insurance shouldn't be affected by the type of financing.

Your lender is probably referring to Private Mortgage Insurance which IS more expensive for an FHA loan vs a USDA loan.
0 votes
Ivan Sagel, Agent, Chicago, IL
Wed Sep 4, 2013
Hello Jennifer,

Are you talking about mortgage insurance or home owner's insurance?

Best regards,

Ivan Sagel
312.515.7823
ivan@atproperties.com
0 votes
Donald Steve…, Agent, Fontana, CA
Wed Sep 4, 2013
It could be that the original loan did not require replacement cost coverage on the house and would take a market value policy. Replacement cost coverage policies offer the most coverage so they tend to cost more.
0 votes
JIM Michaels, Agent, Chicago, IL
Wed Sep 4, 2013
great question for your insurance agent you are using
0 votes
Mark Ghaowi, , Chicago, IL
Wed Sep 4, 2013
A home insurance professional would be able to explain why a specific type of financing would affect your hazard insurance coverage, because it should not be different since the insurer's risk is the same. Nonetheless, I think you may be referring to mortgage insurance. Provided a property and borrower are eligible for USDA financing, there are couple advantages over an FHA loan. The USDA mortgage insurance component is .04% rather than .30% or .35% for FHA. USDA does not require does not require a down payment, while FHA requires at least a 3.5% down payment. A couple disadvantages are USDA has an income ceiling and higher funding fee.
0 votes
Manuel Brown, Agent, Chicago, IL
Wed Sep 4, 2013
Jennifer,

Sam Sharp is absolutely right. I was in a similar situation with one of my buyers' this summer. In the end Guaranteed Rate was able to find the right conventional loan and they were very creative.
0 votes
Jacqueline S…, Agent, Chicago, IL
Wed Sep 4, 2013
Well, insurance is based on risk. FHA loans may be in the higher risk category, therefore fall into a higher cost profile. Ask you insurance person why exactly.
0 votes
Matt Laricy, Agent, Chicago, IL
Wed Sep 4, 2013
I believe you are referring to private mortgage insurance, not insurance.
0 votes
Sohail Salah…, Agent, Chicago, IL
Wed Sep 4, 2013
Jennifer,

It's most likely that FHA has higher Mortgage Insurance than a conventional loan.




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0 votes
Scott Godzyk, Agent, Manchester, NH
Wed Sep 4, 2013
The question should be asked to your insurance agents, insurance is based on the value of home, not usually what type of mortgage you have. You should be insuring the value of the home, not what your mortgage balance is.
0 votes
, ,
Wed Sep 4, 2013
I would double check - I think your lender is talking about the Mortgage insurance which is higher with FHA financing
Sam Sharp
Senior Vice President of Mortgage Lending
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http://www.guaranteedrate.com/SamSharp

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0 votes
Tim Moore, Agent, Kitty Hawk, NC
Wed Sep 4, 2013
Your lender told you this BUT has an insurance agent told you? I think you misunderstood what the lender was telling you because that makes NO SENSE at all. I bet they were talking about the MIP insurance not homeowners insurance. Ask.
0 votes
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