If you are one of those buyers who can’t afford to pay a sizeable down payment, don’t give up on homeownership just yet. Mortgage insurance is a tool that can help you achieve homeownership despite the lack of funds for a down.
When you pay for mortgage insurance as part of your monthly payments, you can get a home with less than 20% down payment, even 3% in some instances.
Let’s unpack the two most common types of mortgage insurance: private mortgage insurance (PMI) and mortgage insurance premium (MIP).
PMI is the insurance premium that you pay with conventional loans. It is required if you are applying for a loan with a down payment that’s less than 20%. You’ll pay a portion of your yearly premium as part of your monthly payments.
According to data from the Urban Institute, PMI rates range from 0.58% to 1.86%.
MIP, on the other hand, is the insurance you pay with FHA loans. The FHA requires you to pay an upfront mortgage insurance premium as well as an annual premium payment. No matter how much you put down, a mortgage insurance premium is required on all FHA loans.
Your upfront payment amounts to 1.75% of the loan amount and can be rolled into your loan amount or paid upfront during closing, while the annual mortgage insurance premium is included in your monthly payments.
Here are some of the benefits of paying for PMI:
Here are the advantages when you pay for MIP:
One of the ways that lenders can offer low rates and low-down-payment loans is by minimizing risk whenever they can, and PMI and MIP provide that protection.
Choosing between paying for PMI or MIP would depend on which loan product makes the most sense for you either a conventional loan or FHA loan. The main difference between PMI and MIP is the loan products they are used for.
If you still can’t decide, ask our loan officers for advice. Get in touch for a free consultation today!
* Specific loan program availability and requirements may vary. Please get in touch with the mortgage advisor for more information.