So what is PMI anyway?

You hear a lot about PMI and MIP, but what does that mean?

Back in the day (you know, 2006ish) you were able to get any type of mortgage without necessarily being qualified for it.  Well, things have changed significantly and lenders want to make sure they are going to get their money back, so many of rules and regulations have been created to try and make that happen.

So here's the skinny on the PMI

PMI - Stands for Private Mortgage Insurance.  If you apply for a conventional mortgage, lenders ideally want you to have a 20% down payment.  With 20% down, they feel a little assurance that you have out enough invested that you won't default on your loan. That doesn't mean they won't give you a loan for less.  They just want they investment insured, and that is where the PMI comes in.  If a borrower puts the minimum down, they require the borrower to pay an additional premium for the PMI. 

MIP - Just like PMI, a Mortgage Insurance Premium will be required on any FHA loan with a down payment less than 20% of your purchase price. More about Mortgage Insurance Premiums here. 

The difference is this.  A borrower can be released of PMI once their LTV reaches 78% or 80%-if requested by the borrower and approved by the lender.  The only way to be released of MIP that quickly is to refinance. 

It may come down to cash on hand.  If you don't have the funds available to put down 20%, an FHA loan may be the one for you.  If you can get close to 20%, the PMI may only be a temporary additional cost.