FHA Mortgage Insurance versus Private Mortgage Insurance

Which is better; FHA mortgage insurance (MI) or private mortgage insurance (PMI)?  A lot depends on the borrower but generally speaking MI is more expensive than PMI and the only way to get rid of MI is to refinance or sell the home.  However not everyone qualifies for the best terms with MI so in those cases PMI is clearly a better choice.  Like mortgage rates, private mortgage insurance (PMI) is higher with lower credit scores.  However FHA mortgage insurance (MI) is the same for low or high credit scores.

For more information here is an article from Brian O’Connell from TheStreet:

Money matters when deciding between a U.S. Federal Housing Administration (FHA) mortgage loan and a conventional loan with private mortgage insurance.

Job one for mortgage buyers is to understand the differences between the two options. Here’s how one industry expert breaks it down.

“FHA requires upfront mortgage insurance and monthly mortgage insurance for the life of the loan,” explained Mark Ferguson, a realtor, real estate investor, author and the creator of Investfourmore.com. “That means you will have to pay the insurance when you buy the home — it can be financed into the loan — and every month as long as you have that mortgage.”

Yet conventional loans with less than 20% down require private mortgage insurance (PMI), Ferguson added. “Different loans have different programs, but usually the cost is from 0.5% to 1% of the loan amount per year With some conventional loans the PMI can be removed after two or three years,” he said. “For that to happen, the home’s value must have increased or the loan paid off enough, for the loan to value ration to be 80% or lower. That means the loan amount needs to be 80% of the value of the home.”

According to WalletHub in its 2016 Mortgage Insurance Report, consumers can save thousands on their decision between an FHA loan and a conventional loan with private mortgage insurance.

Brian O’Connell TheStreet – continue reading