Whether you live in Macomb, Oakland or Wayne county, if you purchased a home with less than 20% down recently, you more than likely have mortgage insurance you are paying for monthly. This is a charge that is typically rolled into your monthly mortgage payment and can be found with FHA or Conventional loans. Mortgage Insurance Premium (MIP) is for FHA loans and Private Mortgage Insurance is for conventional loans; they are basically the same thing in that both of their purposes are to protect the lender in case of borrower default.
PMI is supplied by a third party, MIP is supplied by the lender. PMI offers more flexibility in that it can be paid in a lump sum up front or rolled into the monthly payments. PMI amounts vary and can range between .5% of the loan and 2%. PMI, in most cases, is automatically removed at 78% loan to value and can be requested to be removed at 80%. MIP does not automatically drop-off; the loan needs to be refinanced in order to remove the mortgage insurance.
Most borrowers choose FHA financing when getting approved because it is more cost effective in the short term. MIP has two parts in regards to costs. There is an up-front charge and an annual premium. Currently the up-front rate is 1.75% and the annual premium is .85%. The up-front cost is usually financed into the loan because it does not affect loan-to-value and it is likely that the borrower does not have the funds to pay for the up-front charge.
If you are looking to purchase a home, you are probably wondering which is best for you? That depends on your specific situation. The absolute best choice, if you can afford it, is to put 20% down and avoid the mortgage insurance. The next best choice is the PMI due to it’s flexibility and automatic removal once the loan to value is reached and the last choice would be MIP due to the up-front charge and the inability to remove the mortgage insurance without incurring refinancing charges.
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