What’s the difference between PMI and MIP?

What’s the difference between PMI and MIP?
PMI (Private Mortgage Insurance):
PMI is typically associated with conventional loans, which are mortgages not insured by the government (such as those backed by Fannie Mae or Freddie Mac).
PMI is required for borrowers who make a down payment of less than 20% of the home’s purchase price.
The premiums for PMI are paid by the borrower and are usually included in the monthly mortgage payment.
Once the borrower’s equity in the home reaches 20% (either through payments or appreciation), they can request to cancel PMI.
MIP (Mortgage Insurance Premium):
MIP is specific to FHA (Federal Housing Administration) loans and certain other government-backed mortgages, such as USDA and VA loans.
MIP serves a similar purpose to PMI, providing protection to the lender in case the borrower defaults on the loan.
Unlike PMI, MIP has both an upfront premium (which can be financed into the loan amount) and an annual premium (which is typically paid monthly as part of the mortgage payment).
The upfront premium for FHA loans is usually 1.75% of the loan amount, while the annual premium varies based on the loan term, loan-to-value ratio, and other factors.
FHA loans require MIP for the life of the loan, regardless of the loan-to-value ratio or equity in the home.
In summary, while both PMI and MIP serve similar purposes, they apply to different types of loans and have different premium structures and requirements. Borrowers should be aware of these distinctions when considering mortgage options.

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