- FHA mortgages prohibit lenders from charging for private mortgage insurance, or PMI, because the loan is backed by the FHA. However, the FHA charges mortgage insurance premiums (MIP) that take the place of PMI payments. Like PMI, they can be deducted from your income taxes if your loan was taken out after 2006 and your income falls below the annual limits. You cannot request MIP be canceled on your FHA mortgage. Instead, when your mortgage meets the criteria for ending MIP, your MIP charges will cease.
- If you take out an FHA mortgage, you cannot avoid the upfront mortgage insurance premium. This premium equals 2.25 percent of the loan, but can be rolled into the mortgage if you do not have the extra cash to pay for it out of pocket. However, if you can afford a significant down payment and have good credit, you may want to consider a regular mortgage because the primary benefit of the FHA mortgage is the small down payment.
- You do not have to pay for annual mortgage insurance premiums on your FHA mortgage if you take out an FHA loan with a term of under 15 years and you make a down payment of more than 10 percent. However, you still have to pay the upfront MIP charges. All other loans, including all loans with terms greater than 15 years, require annual MIP charges.
- The MIP charges stop when you reach a loan to value ratio of 78 percent, meaning that your FHA mortgage balance equals less than 78 percent of your home's value. If your FHA mortgage has a term of 15 years or less, this is the only requirement. However, if your mortgage has a term greater than 15 years, you must pay MIP premiums for at least five years before they stop, even if you reach the required loan-to-value ratio before then.