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 (Private Mortgage Insurance) Explained
PMI costs 0.3-1.5% of the loan amount per year. On a $300K loan, that is $900-$4,500/year ($75-$375/month). PMI is automatically removed when you reach 78% loan-to-value. You can request early removal at 80% LTV. PMI is tax deductible for some borrowers. PMI is cheaper than MIP for borrowers with good credit.
MIP (FHA Mortgage Insurance Premium) Explained
MIP has two parts: an upfront premium of 1.75% of the loan amount (can be rolled into the loan) and an annual premium of 0.55-1.05% depending on loan terms. On a $300K loan, annual MIP might be $1,650-$3,150/year. MIP lasts the life of the loan if you put less than 10% down. With 10%+ down, MIP is removed after 11 years.
Which Is Better for You?
PMI is easier to remove and costs less for borrowers with good credit. MIP has higher upfront costs but may allow a lower down payment. If you have good credit and can afford 5% down, conventional with PMI is usually better. If you have lower credit or only 3.5% down, FHA with MIP may be your best option.