Which statement about FHA mortgage insurance (MIP) and private mortgage insurance (PMI) is true?

• A. PMI is charged only as a one-time upfront premium.
• B. FHA MIP can be canceled at any time.
• C. PMI does not require any monthly premium.
• D. FHA MIP is required for most FHA loans with upfront and monthly premiums; PMI is private and may terminate when LTV reaches 80% with payment history; cancellation rules differ.

Answer: (D)

The key idea is how mortgage insurance works differently for FHA loans versus conventional loans. FHA loans require mortgage insurance premium (MIP), which includes an upfront premium paid at closing and a monthly premium added to the loan payment. This coverage is required on most FHA loans and cannot be canceled by the borrower in the same way PMI can; cancellation generally happens only by refinancing into a loan that doesn’t require MIP (or by paying off the loan).

Conventional loans with down payments under 20% use private mortgage insurance (PMI). PMI is provided by private insurers and is typically paid monthly (and sometimes upfront). A borrower can request cancellation once the loan reaches an 80% loan-to-value ratio and they have a good payment history; automatic termination commonly occurs around 78% LTV if payments are current. Cancellation rules for PMI can vary, which is why it’s described as different from one lender or program to another.

So, the statement that correctly captures the situation is that FHA MIP is required for most FHA loans with upfront and monthly premiums, while PMI is private and may terminate when LTV reaches 80% with a good payment history, with cancellation rules that differ.