FHA MIP vs. Conventional PMI – Which is better?

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Mortgage and Lending

 

FHA MIP vs. Conventional PMI – Which is better?

In recent years we have seen a large shift in the market toward FHA lending as most borrowers with small down payments had little to no options on the conventional side.  However, the tide has been turning recently as many Private Mortgage Insurance companies have gotten back in the game and now offer qualified buyers many options that are better and less complicated than FHA.

FHA Benefits

FHA has always and continues to be the best option for borrowers with less than perfect credit and low credit scores.  These borrowers will still find conventional financing more difficult because conventional financing options for these borrowers either is non-existent or so expensive that it is cost prohibitive.

FHA allows gifts for down payments and overall more flexibility with credit blemishes.  The combination of the two is enough to open doors for many would be homeowners.  However, FHA mortgage insurance costs are substantially higher than what they were previously.  This has negatively impacted monthly payments and can have a negative impact on a buyer’s monthly budget.  Remember this as well for refinance clients as although their rate may reduce due to lower interest rates, their payment may not be affected due to higher mortgage insurance premiums.

One other thought, maximum FHA loan amount is $271,050.00

Conventional PMI Benefits

There is a misconception in the market place that many of the PMI companies do not approve loans or do not offer PMI on loans with smaller down payments.  Many of the PMI companies have expanded their guidelines and introduced different premium options for increased flexibility.  Most PMI companies now offer options with down payments as low as 3% vs. FHA’s 3.5% cash investment. Generally it will require 5% down in our area.

Unlike the Government FHA program, Private Mortgage Insurance is available from a number of companies.  Because there are numerous providers, the options can vary from one company to another.  However, the number of options available is greater than the one size fits all approach offered by FHA.

In addition, unlike FHA which has both an upfront premium and a monthly mortgage insurance premium (MIP), conventional PMI has multiple premium options (Single Premium, Lender Paid Premium or Monthly Option) to assist clients in achieving their desired monthly payment.  Some options allow for no monthly mortgage insurance premium at all!

Do not hesitate to call for further information.  You want the best options for your buyers......

 

Comments (2)

Trang Beuschlein
Homes for Sale in Campbell CA- Broker-BKR Realty - Campbell, CA
Campbell CA Real Estate - Campbell CA Homes for Sa

Sunny, great comparison on the differences b/w FHA and conventional!

Nov 08, 2011 06:05 AM
Sunny Group Movement Mortgage
Biloxi, MS

Thanks Trang! Always trying to put info out that will help :)

Nov 09, 2011 04:05 AM