FHA mortgage loans don't require PMI, but they do require an Up Front Mortgage Insurance Premium and a mortgage insurance premium (MIP) to be paid instead. Depending on the terms and conditions of your home loan, most FHA loans today will require MIP for either 11 years or the lifetime of the mortgage.
What is MIP (Mortgage Insurance Premium)? MIP is mortgage insurance required for Federal Housing Administration (FHA) insured loans.
PMI is unique to conventional loans (for instance, loans that are not government-insured, such as FHA, VA, and USDA). Mortgage Insurance Premium (MIP) is required for most Federal Housing Administration (FHA), single-family mortgage loans.
Does FHA require PMI without 20 percent down? FHA loans require mortgage insurance premium (MIP) regardless of down payment size, even if you put down 20 percent or more. PMI (private mortgage insurance) is for conventional loans with less than 20 percent down.
Myth: FHA Streamline Refinance removes PMI. Reality: It may lower MIP costs but doesn't eliminate them entirely. Myth: You need 20% equity to refinance out of an FHA loan. Reality: While 20% equity removes PMI, some conventional loans allow refinancing with less equity (but will require PMI).
You can avoid paying PMI by providing a down payment of more than 20% when you take out a mortgage. Mortgages with down payments of less than 20% will require PMI until you build up a loan-to-value ratio of at least 80%. You can also avoid paying PMI by using two mortgages, or a piggyback second mortgage.
By refinancing to a conventional loan once you have 20% equity, you can eliminate FHA MIP and you won't be subject to PMI. Or, you could refinance into a conventional loan with PMI now.
Your mortgage lender will determine the PMI rate and multiply the percentage by the loan balance. For example, if the PMI rate is 0.5% and your loan amount is $300,000, your PMI will cost $1,500 annually or $125 monthly.
You can remove PMI, or private mortgage insurance, from your mortgage after you have established enough equity in your home. You will need at least 20% in equity. At that point, you can request to have it removed or wait for it to automatically drop off when you have 22% in equity.
Single-premium PMI
Depending on the terms of the loan, you can either pay this in full at closing or roll the amount into the loan for a higher balance. If you pay it upfront, you'll get the benefit of lower monthly mortgage payments.
To calculate, multiply the loan amount by the UFMIP rate of 1.75% to get the UFMIP dollar amount. Then, add the UFMIP to the base loan amount to get the total loan amount. For example, $100,000 Loan amount X 1.75% = $1,750 UFMIP + $100,000 Loan amount = $101,750 Total loan amount.
Current Up-Front Mortgage Insurance Premium
The UPMIP is currently at 1.75% of the base loan amount. This applies regardless of the amortization term or LTV ratio.
These insurance policies are not the same, and it's important to understand the distinction between the two. Homeowners insurance protects the assets of both the borrower and the lender against specific events, such as fires or storms, while mortgage insurance protects the lender against borrower default.
Private mortgage insurance (PMI) is a type of mortgage insurance you might be required to buy if you take out a conventional loan with a down payment of less than 20 percent of the purchase price. PMI protects the lender—not you—if you stop making payments on your loan.
You can contact your lender and request an early termination of PMI as soon as you've paid your mortgage down enough to have an 80% loan-to-value ratio (LTV).
Simply put: if you have an FHA loan term of more than 15 years, have been paying it for at least 5 years, and have an LTV ratio of 78% or less, PMI can be removed from the loan. FHA loans of 15 years or less have the same criteria, minus the 5-year requirement.
How long will you pay FHA MIP? If you get a 30-year FHA loan and put 3.5 percent down, you'll be paying MIP for the entire term (or for as long as you have the loan). If you put down at least 10 percent, you'll pay for 11 years.
If you have an FHA-insured mortgage, these options may be available to you. Informal or Formal Forbearance Plan: A Forbearance plan allows a borrower to work with their mortgage servicer to temporarily pause or reduce their monthly mortgage payments and may provide specific terms for repayment.
A “piggyback” second mortgage is a home equity loan or home equity line of credit (HELOC) that is made at the same time as your main mortgage. Its purpose is to allow borrowers with low down payment savings to borrow additional money in order to qualify for a main mortgage without paying for private mortgage insurance.
If you can afford it, putting 20% down on a house is ideal. It helps you avoid private mortgage insurance (PMI), reduces your loan amount, and lowers monthly payments.
Is mortgage insurance tax-deductible? No, private mortgage insurance isn't tax-deductible now. The mortgage insurance deduction was only available for eligible homeowners for the 2018–2021 tax years.