PMI vs MIP
Private Mortgage Insurance (PMI) and Mortgage Insurance Premium (MIP) are both types of insurance that borrowers may be required to pay when obtaining a mortgage with less than 20% down. However, they are associated with different types of loans.
Private Mortgage Insurance (PMI)
PMI is typically required for conventional loans when the borrower makes a down payment of less than 20% of the home's purchase price. It is a type of insurance that protects the lender in case the borrower defaults on the loan. PMI is provided by private insurance companies and is paid by the borrower as a monthly premium in addition to the mortgage payment.
The cost of PMI can vary based on factors such as the loan amount, credit score, and down payment amount. Once the borrower's equity in the property reaches 20% (based on the original loan-to-value ratio or through appreciation), PMI can be canceled. The lender is required to automatically terminate PMI once the borrower's equity reaches 22%.
Mortgage Insurance Premium (MIP)
MIP is associated with loans insured by the Federal Housing Administration (FHA). FHA loans are government-backed loans that are popular among borrowers with lower credit scores or who have difficulty qualifying for conventional financing. MIP is a fee paid by borrowers to the FHA to provide insurance coverage to lenders against borrower defaults.
MIP consists of both an upfront premium and an annual premium. The upfront premium is typically financed as part of the loan amount, and the annual premium is paid monthly with the mortgage payment. The cost of MIP depends on factors such as the loan amount, loan term, and loan-to-value ratio. Unlike PMI, MIP is required for the entire duration of FHA loans, regardless of the borrower's equity in the property.
Dylan has spent the most of his professional life in retail banking and financial services. What began with credit counseling and collections eventually evolved into sales, operations, and management for several of the top retail banks in the United States. Dylan founded Farmview Mortgage, LLC to bring his retail knowledge to the wholesale environment, where he can focus on what he enjoys most: assisting his customers.
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