PMI vs MIP: What Homebuyers Need to Know

Introduction

Decoding mortgage insurance can be tricky. Two acronyms—PMI y MIP—often confuse prospective homebuyers. Understanding the distinction between Private Mortgage Insurance (PMI) y Mortgage Insurance Premium (MIP) is essential in choosing the right loan for your needs. Let’s break down what each covers, how much they cost, and how they differ in removal options.

What Is PMI?

PMIo Private Mortgage Insurance, is required for préstamos convencionales when the down payment is less than 20% of the home’s purchase price. It protects the lender if you default, not you as a borrower. PMI typically costs between 0.1% and 2% of the loan amount per year, added to your monthly mortgage payment.

One major advantage: PMI can be cancelled once you reach 20% equity in your home. Lenders may require automatic cancellation at 22% equity if you don’t request it earlier.

What Is MIP?

MIPo Mortgage Insurance Premium, is exclusively tied to FHA loans, which are backed by the Federal Housing Administration. Unlike PMI, MIP is required on all FHA loans, regardless of down payment size.

MIP includes two components:

Upfront Mortgage Insurance Premium (UFMIP): typically 1.75% of the loan amount, often financed into the loan.
Annual (or monthly) MIP: ranging from approximately 0.15% to 1.05% of the loan balance per year, depending on loan term, LTV, and loan amount.

Generally, MIP cannot be cancelled unless specific conditions are met—like putting down 10% or more, in which case MIP may automatically end after 11 years, or you refinance into a conventional loan.

Side-by-Side Comparison

Feature	PMI (Conventional Loan)	MIP (FHA Loan)
Down Payment Requirement	Typically < 20% requires PMI	All scenarios require MIP, regardless of down payment
Cost Structure	~0.1%–2% annually added to payment	UFMIP ~1.75% + Annual MIP ~0.15%–1.05%
Cancellation Options	Removable at ~20% equity (auto at 22%)	Generally required for life of loan unless refinanced or >10% down
Best For	Borrowers with good credit aiming for equity build	Buyers needing lower credit requirements or smaller down payment

Pros & Cons: Quick View

PMI Pros

Allows purchase with as little as 3% down on conventional loans.
Eligible borrowers (especially with strong credit) may enjoy lower rates than MIP.
Can be cancelled once equity thresholds are met.

PMI Cons

Loan eligibility may require higher credit (e.g., ≥ 620).
Can be expensive for lower credit scores or minimal down payments.

MIP Pros

FHA loans accept lower credit scores and smaller down payments, typically as low as 3.5%.
May be more affordable than PMI for borrowers with weaker credit.

MIP Cons

Adds both upfront and annual mortgage insurance costs.
Typically cannot be cancelled, especially if down payment is < 10%—unless refinanced.

Which Option Is Right for You?

Choosing between PMI and MIP isn’t merely about the insurance—it’s about the loan type.

Choose PMI (conventional loan) if you can make a decent down payment and have fair-to-good credit; you’ll benefit from removable insurance as your equity grows.
Choose MIP (FHA loan) if you have a lower credit score, limited savings, or immediate need for a smaller down payment—even though it comes with long-term insurance costs.

If MIP turns out more costly in the long run, refinancing into a conventional loan later may let you eliminate mortgage insurance altogether.

Final Thoughts

PMI and MIP serve a similar function—protecting the lender when you put down less than 20%. But they differ in applicability, cost structure, and cancellation terms.

PMI (conventional) offers flexibility to cancel once equity builds.
MIP (FHA) allows easier qualification but often applies long-term.

Evaluate your down payment, credit score, and future plans to choose wisely. If you need help comparing loans or planning refinancing, check out our other internal guides or reach out to our mortgage experts.