What’s the difference between PMI and FHA (Federal Housing Administration) insurance?
PMI is from a private insurance while FHA is a government program backed by taxpayers. PMI usually costs less and it only covers the top 20 to 30 percent of a loan, while FHA insures 100 percent of the loan. PMI is also available on a wider variety of loan products, and there’s no maximum loan amount. FHA loans are subject to maximum loan amounts, depending on the cost of housing in your area. Ways to avoid PMI: There are several ways to avoid paying the high cost of PMI. All are completely normal and are done many times each day. The first way is to split your home loan into two loans. A regular loan at the 80% range which gets rid of the PMI and a second HELOC (home equity line of credit) for the remaining 15% of the loan. They call this a 80-15-5 – 80% first loan, 15% HELOC, 5% equity paid by the consumer. We typically don’t recommend having less than 5% equity. If you can’t cough up 5% equity to buy a home, you probably should look for a cheaper home. The second way to avoid paying
