The initial mortgage insurance premium (MIP) is required for most FHA single-family mortgage insurance programs. Lenders must remit the MIP in advance within 10 calendar days of the closing or disbursement date of the mortgage, whichever occurs later. The cost of the PMI is paid in full at closing. You only pay the PMI up front once, which means you won't have to pay any ongoing monthly mortgage insurance costs.
The FHA charges a single initial mortgage insurance premium (UFMIP) and an annual insurance premium (MIP) that is charged in monthly installments. If you get a conventional loan, your lender can arrange mortgage insurance with a private company. We can help you understand how to read your mortgage statement, where to get help if you're struggling to pay your mortgage, and more. Opting for the monthly PMI means that you have to request the cancellation of the PMI, wait for it to fall automatically once your loan-to-value ratio (LTV) reaches 78%, or refinance your mortgage with a home appraisal that confirms that you have at least 20% capital.
If you get a loan from the Federal Housing Administration (FHA), your mortgage insurance premiums are paid to the Federal Housing Administration (FHA). If you are included in the latter group, the only way to eliminate MIP payments is to refinance with a conventional loan, once your LTV ratio is low enough to be able to apply for a conventional mortgage without a PMI. Mortgage protection insurance can be a useful option for homeowners concerned that their families will pay the mortgage after they die. You'll also pay annual mortgage insurance premiums with FHA loans, which are different from initial mortgage insurance premiums.
If you can't raise enough funds for a 20% down payment, but you insist on not paying for mortgage insurance, a cumulative loan may be a good alternative. Also called “initial PMI”, this option allows you to pay the full premium in a single sum at the closing of the mortgage. When you choose to get an FHA loan, you'll pay an initial mortgage premium (UFMIP), which is equal to 1.75% of the base amount of your loan. PMI is a type of mortgage insurance that buyers are often required to pay for a conventional loan when they make a down payment of less than 20% of the purchase price of the home.
Generally, borrowers who make a down payment of less than 20 percent of the purchase price of the home will have to pay for mortgage insurance. However, the downside of this option is that you probably won't be repaid this amount if you move or refinance your mortgage. As with FHA loans, you can transfer the initial portion of the insurance premium to your mortgage instead of paying it out of pocket, but doing so increases both the amount of the loan and the overall costs. Melissa Brock is a freelance writer and editor who writes about higher education, trading, investments, personal finance, cryptocurrency, mortgages and insurance.