When you're buying a home, you'll likely hear the terms PMI (Private Mortgage Insurance) and MIP (Mortgage Insurance Premium). While these might sound confusing, they're actually important tools that help many people become homeowners sooner—especially if making a large down payment isn't possible right now.
What Is PMI?
PMI stands for Private Mortgage Insurance. It applies to most conventional loans when your down payment is less than 20%. PMI helps protect the lender in case the borrower cannot repay the loan. In return, the lender is more likely to approve a loan with a smaller down payment.
If you’re putting down less than 20%, PMI allows you to move into your new home without having to wait years to save up. While it adds to your monthly payment, it also gives you quicker access to homeownership.
You won’t have to pay PMI forever. Once you build up 20% equity in your home, your lender is usually required to remove it. You can also request a review if you believe your home has increased in value or you’ve paid down a good portion of the loan.
What Is MIP?
MIP stands for Mortgage Insurance Premium, and it’s required for FHA loans. These government-backed loans are a great option for buyers who have a smaller down payment—sometimes as low as 3.5%.
Just like PMI, MIP protects the lender, but it's specific to FHA loans. MIP is typically paid for the life of the loan, unless you made a down payment of 10% or more—then it can be removed after 11 years.
Do You Need PMI or MIP?
If you're not able to make a 20% down payment, PMI or MIP will likely be required. These forms of insurance make it possible to buy a home sooner rather than later. While they increase your monthly payment slightly, they can help you lock in a home at today’s prices—before home values and interest rates rise.
If you'd rather avoid the added cost, saving for a larger down payment is another option. But for many buyers, especially first-time homeowners, PMI or MIP are helpful tools that make buying a home more accessible.
Thinking about buying a home but not sure how your down payment stacks up? Let’s talk about your options. I can help you choose a loan that fits your goals and budget—reach out today to get started.