PATRICK'S QUICK ANSWER
PMI is private mortgage insurance on conventional loans with less than 20% down; it drops off at 80% LTV. MIP is the FHA premium with an upfront 1.75% charge plus annual premiums; it lasts the life of the loan under 10% down. Good credit and 5% down usually favors PMI; lower credit favors FHA. Ask Patrick how PMI vs MIP would affect your budget.
Mortgage insurance is the fee nobody wants to pay and almost every first-time buyer has to, and the choice between PMI and MIP can cost you thousands depending on how long you keep the loan. Here is the difference in plain English.
PMI, Private Mortgage Insurance, is required for conventional loans with less than 20% down. MIP, Mortgage Insurance Premium, is required for all FHA loans with less than 10% down.
PMI can be removed when you reach 20% equity. MIP on FHA loans with 10% down or more can be removed after 11 years. MIP on FHA loans with less than 10% down lasts the life of the loan.
PMI on conventional loans
PMI costs 0.3% to 1.5% of the loan amount per year. On a $300,000 loan, that is $900 to $4,500 a year, or $75 to $375 a month. PMI is automatically removed when you reach 78% loan-to-value, and you can request early removal at 80% LTV.
The meaning: PMI protects the lender when your down payment is small. The good news is it is temporary, and it is cheaper than MIP for borrowers with good credit.
The real-world consequence: the removal rules are the whole ballgame. With PMI, the insurance ends when your equity hits the threshold, which is why conventional loans reward buyers who build equity fast.
MIP on FHA loans
MIP has two parts: an upfront premium of 1.75% of the loan amount, which can be rolled into the loan, and an annual premium of 0.55% to 1.05% depending on loan terms. On a $300,000 loan, annual MIP might be $1,650 to $3,150 a year.
The money consequence: the upfront premium is real money added to your loan balance, and the annual premium runs for years. MIP lasts the life of the loan if you put less than 10% down.
The real-world play: with 10% or more down, MIP drops off after 11 years. With less than 10% down, it never drops off on its own, which is why many FHA buyers refinance into conventional once they build equity.
Which is cheaper
PMI is cheaper than MIP for borrowers with good credit and is easier to remove. MIP has higher upfront costs but may allow a lower down payment. The comparison depends on your credit score, your down payment, and how long you plan to keep the loan.
The meaning: there is no universal winner. The right answer is the one that costs you the least over the years you actually hold the loan.
The real-world consequence: a buyer with strong credit and 5% down usually wins with conventional plus PMI, while a buyer with lower credit or only 3.5% down often starts with FHA and plans the refinance.
When PMI wins
If you have good credit and can afford 5% down, conventional with PMI is usually better. PMI can be removed at 80% LTV on request, and it disappears automatically at 78%, so the insurance ends as your equity grows.
The money consequence: every month past removal is a month with no insurance premium, which is why the removal rule is worth planning around.
The real-world play: if you expect to build equity quickly through appreciation or extra payments, PMI's cancellation is a feature you can bank on.
When MIP wins
If you have lower credit or only 3.5% down, FHA with MIP may be your best option. FHA allows more debt relative to your income and works from a 580 credit score, which opens the door for buyers conventional would turn away.
The meaning: MIP is the price of getting in the door with less cash and more flexible credit.
The real-world play: start with FHA to get the keys, build equity for a few years, then refinance into conventional to cut the insurance loose. That is the playbook I run with buyers every week.
The decision that matters
The key question is how long you will have the loan. If you plan to build equity quickly or refinance soon, PMI is better because you can remove it. If you need the lowest possible monthly payment and the lowest upfront cash, the comparison gets more nuanced.
Make it a great one, Patriot Nation. I run the numbers both ways for every client: the full monthly cost, the removal timeline, and the refinance plan. Let the math pick the winner.
Ask Patrick about PMI vs MIP
Get a straight answer on PMI vs MIP and how it fits your budget.
