PMI on FHA Loans: What You Need to Know
If you're thinking of obtaining an FHA loan, it's important to understand the role that private mortgage insurance (PMI) plays in the process. As a government-backed mortgage option, FHA loans have slightly different requirements than conventional loans. So, is PMI mandatory on FHA loans? Here's what you need to know.
What is PMI?
First, let's define PMI. This is an insurance policy that protects the lender if you default on your loan. It's typically required when you make a down payment of less than 20% on a conventional loan. With an FHA loan, PMI is referred to as Mortgage Insurance Premium (MIP).
Is PMI mandatory on FHA loans?
Yes, MIP is mandatory on all FHA loans. Unlike with conventional loans, there's no way to avoid MIP on an FHA loan -- even if you make a substantial down payment.
How much does MIP cost?
The cost of MIP varies based on several factors, including the size of your down payment and the length of your loan term. In general, you can expect to pay an upfront premium of 1.75% of the loan amount, as well as an annual premium between 0.45% and 1.05% of the loan amount. These premiums are divided into monthly payments and added to your mortgage payment.
Why is MIP required on FHA loans?
The purpose of MIP is to protect the lender against the risk of default. Because FHA loans are backed by the government, they carry more risk for lenders than conventional loans. By requiring MIP, the FHA ensures that lenders can continue to offer affordable financing options to borrowers with less-than-perfect credit or financial situations.
Can you cancel MIP?
In some cases, MIP can be canceled or removed from an FHA loan. This typically requires that you have made at least 10% down payment and have paid MIP for at least 11 years of the loan term.
What are the benefits of an FHA loan?
While MIP is a requirement of FHA loans, they also offer several benefits to borrowers, including:
Why choose Mortgage Brokers Pro for your FHA loan?
At Mortgage Brokers Pro , we specialize in FHA loans and can help guide you through the process. Our team of experienced loan officers can answer any questions you may have about MIP or other aspects of FHA loans. Plus, we offer competitive rates and excellent customer service. Contact us today to learn more about how we can assist with your home financing needs.