What’s the difference between private mortgage insurance and mortgage insurance premium?
If you are one of those buyers who can’t afford to pay a sizeable down payment, don’t give up on homeownership just yet. Mortgage insurance is a tool that can help you achieve homeownership despite the lack of funds for a down.
When you pay for mortgage insurance as part of your monthly payments, you can get a home with less than 20% down payment, even 3% in some instances.
Let’s unpack the two most common types of mortgage insurance: private mortgage insurance (PMI) and mortgage insurance premium (MIP).
What is PMI?
PMI is the insurance premium that you pay with conventional loans. It is required if you are applying for a loan with a down payment that’s less than 20%. You’ll pay a portion of your yearly premium as part of your monthly payments.
According to data from the Urban Institute, PMI rates range from 0.58% to 1.86%.
What is MIP?
MIP, on the other hand, is the insurance you pay with FHA loans. The FHA requires you to pay an upfront mortgage insurance premium as well as an annual premium payment. No matter how much you put down, a mortgage insurance premium is required on all FHA loans.
Your upfront payment amounts to 1.75% of the loan amount and can be rolled into your loan amount or paid upfront during closing, while the annual mortgage insurance premium is included in your monthly payments.
Benefits of PMI
Here are some of the benefits of paying for PMI:
Gives borrowers a chance to qualify for a loan with as little as 3% down payment.
Borrowers can pay less if they have a good credit score or put down a higher amount than the minimum, either 5% or 10%. Better PMI rates can be negotiated if you score 740 or higher.
PMI can be removed once you reach 20% equity
Standard monthly PMI doesn’t require an upfront premium during closing
Benefits of MIP
Here are the advantages when you pay for MIP:
FHA loans allow down payments as low as 3.5%
A great option for first-time home buyers who might have difficulty qualifying for a conventional loan due to low credit scores, low income, and high debt-to-income ratio
MIP rates are set and don’t fluctuate based on your credit score
Is PMI or MIP a good option for you?
One of the ways that lenders can offer low rates and low-down-payment loans is by minimizing risk whenever they can, and PMI and MIP provide that protection.
Choosing between paying for PMI or MIP would depend on which loan product makes the most sense for you either a conventional loan or FHA loan. The main difference between PMI and MIP is the loan products they are used for.
If you still can’t decide, ask our loan officers for advice. Get in touch for a free consultation today!
Advantage Home Loans, LLC strives to ensure that its services are accessible to people with disabilities. Advantage Home Loans, LLC has invested a significant amount of resources to help ensure that its website is made easier to use and more accessible for people with disabilities, with the strong belief that every person has the right to live with dignity, equality, comfort and independence.
Accessibility on Advantage Home Loans, LLC website
Advantage Home Loans, LLC makes available the UserWay Website Accessibility Widget that is powered by a dedicated accessibility server. The software allows advantagehomeloans.com to improve its compliance with the Web Content Accessibility Guidelines (WCAG 2.1).
Enabling the Accessibility Menu
Advantage Home Loans, LLC accessibility menu can be enabled by clicking the accessibility menu icon that appears on the corner on the page. After triggering the accessibility menu, please wait a moment for the accessibility menu to load in its entirety.
Advantage Home Loans, LLC continues its efforts to constantly improve the accessibility of its site and services in the belief that it is our collective moral obligation to allow seamless, accessible and unhindered use also for those of us with disabilities.
Despite our efforts to make all pages and content on Advantage Home Loans, LLC website fully accessible, some content may not have yet been fully adapted to the strictest accessibility standards. This may be a result of not having found or identified the most appropriate technological solution.
Here For You
If you are experiencing difficulty with any content on Advantage Home Loans, LLC website or require assistance with any part of our site, please contact us during normal business hours as detailed below and we will be happy to assist.
If you wish to report an accessibility issue, have any questions or need assistance, please contact us by sending an email to: email@example.com