FHA

• FHA requires two different types of mortgage insurance on its loans. FHA requires upfront mortgage insurance premiums, or UFMIP, when the loan is first closed. In addition, FHA requires monthly mortgage insurance premiums, or MIP, with each monthly payment. The buyer, seller or lender can pay the UFMIP at the time the loan closes. MIP is paid by the borrower each month and is included as part of the payment.
  
  

PMI

• Mortgage lenders, including Fannie Mae and Freddie Mac, usually require private mortgage insurance, or PMI, on any new loan with a loan-to-value, or LTV, ratio that exceeds 80 percent. PMI protects the lender from losses in the event a homeowner's loan requires foreclosure. Unlike FHA's mortgage insurance, PMI must automatically be removed when the LTV is 78 percent or less. The homeowner can also request that the PMI be removed once he can prove the LTV is 80 percent or less.
  
  

Single-Payment PMI

• Certain PMI companies offer a single payment option once the loan closes. This allows the homeowner to pay a single premium at the close of a loan instead of paying monthly PMI. Usually this PMI can be paid by the homeowner, the home seller or the lender. The amount of PMI required is dependent upon the loan amount, the LTV and a mortgage type. Once this PMI is paid, it covers the lender for the life of the loan.
  
  

Lender-Paid PMI

• Lender-paid PMI allows the lender to pay the PMI directly instead of the homeowner. The lender raises the interest rate on the loan but doesn't charge the homeowner the PMI premium directly. Lender-paid PMI isn't as popular an option as it once was. The tax code authorizes PMI to be deducted from your taxes much like mortgage interest is. Underpaid PMI was popular when PMI wasn't tax-deductible.
  
  

Qualifying for PMI

• PMI companies reserve the right to approve borrowers separately from the loan approval. This means a homeowner who wishes to have PMI must be approved both by the lender and by the PMI company. Often this means the loan must go through two separate approval processes. The PMI companies may require you to provide additional documentation that the lender didn't require. This is normal and customary, and extra time should be allotted to provide for this process.