May 17, 2022

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FHA Mortgage Insurance: What You Need To Know

FHA home loans

When you apply for an FHA mortgage, you are required to have mortgage insurance. This comes in the form of an FHA Up-Front Mortgage Insurance Premium which is paid at closing time in cash or financed into the FHA loan amount. You can do one or the other, but you can’t partially finance this premium.

That’s the “up front” part. FHA loans require an annual premium paid in monthly installments. This is called a Mortgage Insurance Premium and is not the same as conventional Private Mortgage Insurance. 

That is required by conventional lenders for certain mortgages without a 20% down payment or better. Private mortgage insurance is known by the acronym PMI, and some borrowers (even some lenders) use MIP and PMI interchangeably even though they aren’t the same thing. How different are they?

Private mortgage insurance may be canceled at the borrower’s request once the loan-to-value ratio hits 20%. FHA mortgages by comparison require MIP for either 11 years or the entire duration of the mortgage depending on the loan-to-value ratio and other factors.

MIP–the FHA’s mortgage insurance program–is paid as part of your mortgage payment each month. Shorter loan terms may have different MIP price tags than longer loan terms. Be sure to ask your loan officer how much you might be expected to pay for either.

It is also not the same as homeowners insurance. What is the difference? Homeowner’s insurance is for the borrower and is meant to provide financial protection for anything listed in the insurance policy such as fire, burglary, storm damage, and more. 

The most important thing to remember when buying a homeowner’s insurance policy is that if it is not specifically named in your policy, you do not have coverage for it. 

Some homeowners learn this the hard way–for example, if you have a burst water pipe, a policy that includes “water damage” might cover that. But if there is a local flood and your policy doesn’t have words like “rising water” you may NOT be covered for that.

And how does FHA mortgage insurance compare to this? It doesn’t. The FHA mortgage insurance premiums you pay are required by the lender for the lender’s protection in case you default on your home loan and the loan goes into foreclosure.

The insurance in this case is paid directly to the lender, no portion of it goes to the borrower, and there are no provisions in this insurance for any other type of coverage such as against theft or burglary.

Joe Wallace - Staff Writer

By Joe Wallace

February 15, 2022

Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.

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About FHANewsBlog.com
FHANewsBlog.com was launched in 2010 by seasoned mortgage professionals wanting to educate homebuyers about the guidelines for FHA insured mortgage loans. Popular FHA topics include credit requirements, FHA loan limits, mortgage insurance premiums, closing costs and many more. The authors have written thousands of blogs specific to FHA mortgages and the site has substantially increased readership over the years and has become known for its “FHA News and Views”.

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