Private mortgage insurance (PMI) and Federal Housing Administration (FHA) mortgage insurance premiums (MIP) are both forms of mortgage insurance that protect the lender if you don't make your mortgage payments. However, they're different in a few ways:
PMI is required for conventional loans when your down payment is less than 20% of the home's value. However, MIP is always required for all FHA loans, regardless of the down payment amount.
The cost of PMI varies depending on several factors, including the lender and your creditworthiness. Consequently, you can pay more for the same PMI with different lenders. So, compare PMI payments with a few lenders to ensure you pay the appropriate amount.
On the other hand, FHA's MIP is always the same, no matter which lender you use, because the government determines the MIP rates.
MIP is typically more expensive than PMI. Still, FHA can be cheaper for homebuyers with lower credit scores. For this reason, you should consider an FHA loan if your credit score is less than 680. Visit our FHA loan page for more information.
You can cancel PMI after reaching a certain loan-to-value ratio (LTV) or equity threshold. However, with an FHA loan, you might have to pay MIP for the life of the loan.