Mortgages

GLOSSARY:

• Down payment
• FHA loan
• Private mortgage insurance (PMI)
• Equity

More Terms

RELATED LINKS:

• FHA changes mortgage insurance premiums again
• Why do I have to pay mortgage insurance on an FHA loan if I refinance less than 78% of the appraised value?
• Is private mortgage insurance meant to last the full term of the loan?
• Will I need private mortgage insurance under the government’s refinance program?
• How can I avoid taking out a piggyback loan?

Q. Do you need PMI with an FHA mortgage?

A. You need to pay mortgage insurance on your FHA purchase, but it's not called PMI (private mortgage insurance). PMI refers to mortgage insurance on conventional loans. Mortgage insurance on an FHA loan is just called mortgage insurance.

The FHA requires that all borrowers buy mortgage insurance, no matter how much equity they have or the size of their down payment. That's the price borrowers pay for having the government stand behind their loan.

Home buyers are charged an up-front premium at closing of 2.25% on every $100,000 borrowed. This was recently increased from 1.75%. That means you'll pay a $2,250 insurance premium on every $100,000 borrowed instead of $1,750. This premium, however, can be rolled into your loan.

If you don't have 22% equity in your home at purchase, you'll also be charged monthly insurance premiums.

If your down payment is less than 5% on a 30-year, fixed-rate mortgage, those premiums will be 0.55% of the outstanding balance each year. A down payment of 5% or more will reduce your annual cost to 0.5%. Annual premiums will be added to your mortgage payment in monthly increments.

You won't be able to drop that insurance until you reach 22% paid equity and have made at least five years' worth of payments.

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