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PMI vs MIP: The Critical Difference Between Conventional and FHA Mortgage Insurance
PMI vs MIP — the critical difference: PMI (conventional) cancels at 80% LTV. FHA MIP: 1.75% upfront (usually financed) + 0.15-0.75% annually. FHA MIP with < 10% down: lasts the ENTIRE life of the loan (post-June 2013 FHA loans). FHA MIP with 10%+ down: cancels after 11 years. To escape FHA MIP before life-of-loan: refinance to conventional once you have 20% equity. This fundamentally changes the FHA vs conventional analysis for most buyers. Own Luxury Homes® 12-Point Agent Integrity Audit™.
PMI vs MIP: The Critical Difference Between Conventional and FHA Mortgage Insurance
This is the most financially consequential mortgage insurance fact most buyers never learn: PMI on conventional loans can be cancelled. FHA MIP, in most cases, cannot — it lasts the life of the loan.
How PMI Works (Conventional Loans)
Private Mortgage Insurance (PMI) on conventional loans: • Required when: down payment 80%) • Cost: 0.2–2% annually (most pay 0.5–1.5%) • Upfront premium: optional; some lenders offer single-premium PMI • Monthly premium: added to your mortgage payment • Cancellation: borrower request at 80% LTV (HPA rights); automatic at 78% LTV; automatic at loan midpoint • Credit score sensitivity: high — 760+ pays much less than 620-639 For most conventional borrowers with good credit and a 10% down payment, PMI cancels in approximately 7–8 years through normal amortization, or sooner if the home appreciates.
How MIP Works (FHA Loans)
Mortgage Insurance Premium (MIP) on FHA loans: • Required on: all FHA loans regardless of down payment size • Upfront MIP: 1.75% of the loan amount, typically financed into the loan • Annual MIP: 0.15–0.75% depending on loan term, LTV, and loan amount • Cancellation (< 10% down): MIP lasts the ENTIRE life of the loan for FHA loans with less than 10% down originated after June 2013. There is no LTV threshold that cancels it. • Cancellation (10%+ down): MIP cancels after 11 years • The only way out if < 10% down: refinance to a conventional loan once you have 20% equity This life-of-loan MIP structure means FHA borrowers who put less than 10% down will pay mortgage insurance for 30 years unless they refinance.
The Math: When to Choose Conventional PMI vs FHA MIP
The decision between FHA and conventional depends on your credit score, down payment, and how long you plan to stay. FHA often makes sense when: your credit score is 580–679 (conventional PMI at these scores is very expensive, potentially more than FHA MIP); your down payment is very low (3.5% FHA vs 3% conventional HomeReady — similar but FHA has more flexible underwriting); or you have had recent credit events (FHA is more forgiving of recent bankruptcy or foreclosure). Conventional often makes sense when: your credit score is 680+ (PMI rates become competitive); you plan to stay long enough to cancel PMI (FHA MIP never cancels at < 10% down without refinancing); or your down payment is approaching 20% (where PMI cancels relatively quickly). The crossover point is typically around 680–700 credit score for most loan scenarios. Below that, FHA MIP may be comparable to or lower than conventional PMI. Above it, conventional PMI is often the better long-term choice because it can be eliminated.
“The buyer who does not understand the FHA MIP life-of-loan issue is the one who ends up paying mortgage insurance for 10, 15, or 20 years when they thought they were paying it for 7–8. I see this regularly: a buyer chose FHA because they had a 620 credit score, bought the home, their score improved to 700+, and 4 years later they are still paying MIP with no cancellation path except refinancing. If they had known this upfront and the FHA rate and conventional rate had been close, they might have worked to improve their score for 2–3 months to get into a conventional loan. The timing of that conversation — before they choose the loan type — is where I add real value.”
— Ryan Brown, Principal Broker & CEO, Own Luxury Homes®
What is the difference between PMI and MIP?
PMI (Private Mortgage Insurance) is required on conventional loans with less than 20% down. It can be cancelled when your loan balance reaches 80-78% of the original purchase price. MIP (Mortgage Insurance Premium) is required on all FHA loans regardless of down payment. For FHA loans originated after June 2013 with less than 10% down, MIP lasts the entire life of the loan — it cannot be cancelled. The only way to eliminate FHA MIP in this case is to refinance to a conventional loan once you have 20% equity.
Is FHA or conventional better for first-time buyers?
It depends primarily on your credit score. With a 620-679 credit score, FHA often wins because conventional PMI rates are high at lower credit scores. With a 680+ credit score, conventional becomes increasingly competitive because: PMI rates improve significantly, PMI can eventually be cancelled (FHA MIP at < 10% down cannot), and conventional loans avoid FHA's 1.75% upfront MIP. The decision should be made by comparing total cost of ownership over your expected hold period, not just the initial monthly payment.
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— Ryan Brown, Principal Broker & CEO, Own Luxury Homes® (FL License BK3626873)