FHA MIP vs. Conventional PMI: A Battle of Loans

With all the various acronyms the mortgage industry expects you to know, different loan options can seem overwhelming. Read below for an outline of the important differences between FHA and conventional loans and the corresponding differences in the insurance they use. We hope this helps you better understand your options.

A conventional mortgage has many different requirements than an FHA loan. These include fixed-rate mortgages, 203K loans, energy efficient mortgages, and more. The main advantage of FHA vs. conventional loans is that the credit qualifying criteria for a borrower is not as strict as it is with conventional financing. Also, the down payment (or equity requirement) is less. In deciding between FHA vs. conventional loans, the conventional loans will rely more on the buyer's credit history.

There are many reasons why families consider an FHA refinance loan, but the primary reason is that people may feel as though they have an ever-present foreclosure cloud looming over their heads. This can be avoided with an FHA loan. Here at MCity Mortgage, we can use the FHA loan programs to help you refinance your current loans with better rates to protect your future.

Consider an FHA Refinance Loan vs. a Conventional Refinance Loan If:  

  • You're facing foreclosure or you're at risk of falling behind on your current home loan
  • Your income is considered average or below average in the area where you live
  • Your mortgage payments make up 31% or more of your total income
  • You occupy the building that you wish to refinance
  • You have an adjustable rate mortgage that is making your mortgage payments higher than you can afford

As with any line of credit, FHA refinance loans require a credit check before FHA refinancing can be approved. Don't let this requirement scare you away. You'll be surprised to learn that FHA rules are very flexible when it comes to reviewing your credit history for an FHA refinancing loan. In this kind of refinance, the underwriting guidelines are less strict than they are with conventional mortgages.

In addition, when choosing FHA vs. conventional loans, an FHA loan will generally have the least amount of money required to close and will have lower payments.

FHA vs. Conventional - Figuring Out Which Mortgage Insurance Is Which 

Mortgage insurance is simply a guarantee to lenders that partially compensates for losses due to a default. Just as we buy car or property insurance, lenders buy "lending insurance."

FHA MIP stands for Federal Housing Administration Mortgage Insurance Premium; it's easier to stick with the acronym. When you use an FHA-insured mortgage for purchase or refinance, an FHA MIP is required. It's the government's form of private mortgage insurance.

FHA loans are only paired with MIP insurance. Conventional loans use another system called PMI. Often people ask about FHA PMI, but this doesn't actually exist. PMI is the private version of loan insurance, which accompanies standard loans issued by private agencies, so by definition,
Federal Housing Administration Private Mortgage Insurance (FHA PMI) is contradictory.

As you look over the benefits of FHA vs. conventional loans, just remember they each have a different insurance system. FHA loans have a Mortgage Insurance Premium (MIP) and conventional loans have Private Mortgage Insurance (PMI).

Homebuyers might use an FHA mortgage if they cannot afford to make the 20% down payment or less than 20% equity when refinancing, which is normally required for conventional mortgages. Although MIP is not the same as PMI, FHA MIP is not
that much different than conventional (PMI) insurance. Because of this, it is possible to confuse the two. At MCity, we can help you figure out, FHA MIP, conventional (remember, not FHA) PMI, and whether FHA or conventional financing is best.  

FHA Guidelines | Taking a Look at What HUD Can Do ...
Taking the First Step

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