What Is the PMI on an FHA Loan?

FHA loan PMI isn't like the traditional mortgage loan PMI. PMI is private mortgage insurance. FHA loans also require insurance, but they have what is called Mortgage Insurance Premiums. Instead of private mortgage insurance, FHA loan holders pay an insurance premium for the guarantee that their loan will be paid.

Payments

The insurance premium has two parts: one is paid up front and the other is a monthly finance charge. The upfront fee is anywhere from 1.25% to 2.25% of the mortgage amount, depending on the credit score of the borrowers. The monthly premium is typically .55% of the balance on the loan. As you continue to make your loan payments each month, the premium amount is reduced, and your monthly payment goes down.

The higher your initial credit score is, the lower the upfront payment will be. Those with lower credit scores are higher risk to the government who is guaranteeing the loan to the bank, so the higher risk borrowers will have to pay more to get the loan. If the loan is refinanced at a later date, the borrowers may get a partial refund of the premium they have paid.

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