What type of mortgage typically requires two types of mortgage insurance?

The type of mortgage that typically requires two types of mortgage insurance is the FHA (Federal Housing Administration) loan. FHA loans are designed to help borrowers with lower credit scores and those who may not have a significant down payment available. To mitigate the risks associated with these loans, the FHA requires both an upfront mortgage insurance premium (UFMIP) and an annual mortgage insurance premium (MIP).

The upfront premium is usually rolled into the loan amount or paid at closing and provides initial coverage to the lender in case of default. The annual premium is paid monthly as part of the borrower's mortgage payment, continuing throughout the life of the loan or until certain conditions are met, such as refinancing into a conventional loan or reaching a certain loan-to-value ratio.

FHA loans often have mortgage insurance requirements due to the lower down payment options they provide (as low as 3.5%). This insurance protects lenders against losses that may occur if a borrower defaults, allowing more individuals to access home financing who might otherwise be unable to do so due to financial constraints.

In contrast, VA loans (for eligible veterans) do not require mortgage insurance, while conventional mortgages may require private mortgage insurance (PMI) only if the borrower’s down payment is less than 20%.