FHA vs. conventional mortgage insurance
Mortgage insurance is one of the most misunderstood parts of buying a home. Many buyers assume it’s a single concept—but there are two very different types, depending on the loan you choose: MIP and PMI.
Understanding how each works can save you thousands over time and help you choose the right loan strategy from the start.
What Is MIP (Mortgage Insurance Premium)?
MIP applies to FHA loans. It protects the lender in case of default and allows FHA loans to offer:
- Lower down payments
- More flexible credit guidelines
- Higher allowable debt ratios
FHA mortgage insurance comes in two forms:
1. Upfront MIP
- Typically 1.75% of the loan amount
- Often rolled into the loan balance
2. Annual (Monthly) MIP
- Paid monthly as part of your mortgage payment
- Cost depends on loan amount, term, and down payment
What Is PMI (Private Mortgage Insurance)?
PMI applies to conventional loans when the down payment is less than 20%.
Key characteristics of PMI:
- Cost is heavily influenced by credit score
- Usually cheaper than FHA MIP for strong-credit borrowers
- Not paid upfront
- Can be removed once equity reaches certain levels
The Biggest Difference: How Long It Lasts
This is where MIP and PMI truly diverge.
MIP (FHA)
- With less than 10% down, MIP often lasts the life of the loan
- With 10% or more down, MIP lasts 11 years
PMI (Conventional)
- Can be removed at 80% loan-to-value (by request)
- Automatically removed at 78% loan-to-value
This difference alone makes conventional loans more attractive long-term for many buyers.
Which Is Better: MIP or PMI?
It depends on your situation:
FHA + MIP may make sense if:
- Credit score is lower
- You need flexible qualification
- You’re focused on short-term affordability
Conventional + PMI may be better if:
- Credit score is strong
- You want mortgage insurance to be temporary
- You’re planning long-term ownership
Many buyers start with FHA, then refinance into a conventional loan later to eliminate MIP.
How Affinity Home Lending Helps Buyers Choose Wisely
We help buyers:
- Compare FHA vs. conventional costs side-by-side
- Estimate long-term mortgage insurance impact
- Build strategies to remove insurance sooner
- Decide when refinancing makes sense
Mortgage insurance isn’t “good” or “bad”—it’s a tool. The key is using the right one.