Home Buyers Need to Mind Their 'PMI & FHA, MIPs!'

The two forms of mortgage insurance protection — private mortgage insurance (PMI) or Federal Housing Administration mortgage insurance premiums (FHA, MIP) — are similar in idea, but there are some differences.

The purpose for mortgage insurance is to provide protection for mortgage lenders and or investors against losses due to mortgage loan default.

• FHA mortgage insurance premiums are upfront fees paid by a home buyer at the time of closing. That's different from PMI, which is traditionally figured into the mortgage payment until the buyer owns at least 22 percent of the home, based on the original property value, at which time it can be cancelled (with a few exceptions).
• FHA regional loan limits are generally lower than those bearing private mortgage insurance.
• FHA, MIP is a governmentally administered program, and PMI is offered through privately owned companies.
• FHA, MIP lasts for the lifetime of the loan. PMI can be cancelled under certain guidelines.

The FHA has a scheduled MIP increase effective April 18 that will affect all new FHA 15- and 30-year loans and will increase a new home buyer’s mortgage payment, according to the FHA's estimation, by roughly $30 a month. The minimum down payment still stands the same at 3.5 percent, along with the maximum seller contribution of 6 percent.

Contact your real estate or mortgage professional for more detailed and specific information about mortgage insurance as it applies to your personal home buying financial situation and history.

Some helpful links:

More information about PMI

More information about FHA, MIP