FHA mortgage insurance and conventional PMI solve a similar lender-risk problem, but they operate under different rules.
Conventional PMI
PMI is private mortgage insurance used with many conventional mortgages when initial equity is below certain thresholds. Cost and cancellation rules depend on the loan.
FHA Mortgage Insurance
FHA uses government mortgage insurance and commonly includes both an upfront premium and an annual premium.
Compare the Complete Structure
- Interest rate
- APR
- Mortgage insurance
- Upfront costs
- Monthly payment
- Cash to close
- Expected duration of mortgage insurance
- Expected time in the home
Homebuyer takeaway: Do not compare mortgage programs only by interest rate. Compare the entire financing structure.
Sources
USA.gov: Federal Housing Administration