How long does this lesson take?

About 11 minutes to read, plus a ten-question check in the free course.

PMI, MIP & Guarantees

Q: What are common MLO exam mistakes on pmi, mip & guarantees?

Applying the 80/78 rules to FHA loans. The fix: HPA covers PMI on conventional loans only. FHA MIP follows its own duration rules — life-of-loan under 10% down. Confusing who PMI protects. The fix: The borrower pays; the LENDER is the insured party against default loss. Quoting 78% off the current appraisal. The fix: The statutory triggers run off ORIGINAL value (purchase price/appraisal at closing); current-value cancellations are lender-policy requests.

~11 min read · Contrast PMI cancellation rules with FHA MIP and VA funding fees.

Mortgage insurance is the toll for small down payments, and each program tolls differently: PMI cancels, FHA MIP mostly doesn't, VA charges once up front, USDA charges small and steady. The cancellation numbers — 80 and 78 — are near-guaranteed exam material.

PMI and the Homeowners Protection Act

Conventional loans under 20% down carry private mortgage insurance protecting the LENDER (the borrower pays; the lender is insured). The Homeowners Protection Act sets exits: borrower-requested cancellation at 80% LTV of the original value (good payment history, possibly proof value hasn't fallen), automatic termination at 78% LTV of original value when payments are current, and final termination at the loan's midpoint regardless. Lender-paid MI (LPMI) hides the premium in the rate — no cancellation, because there is nothing separately billed.

Protects the lender; paid by the borrower
Request cancellation at 80% original-value LTV
Automatic at 78% LTV when current; midpoint backstop
LPMI: higher rate instead, no cancellation path

FHA MIP

FHA layers an upfront MIP (a percentage of the loan, almost always financed into the balance) with an annual MIP paid monthly. Duration is the trap: with less than 10% down, annual MIP runs for the life of the loan; with 10%+ down, it drops after 11 years. HPA cancellation rights do NOT apply to FHA — the escape from life-of-loan MIP is refinancing into a conventional loan once equity supports it.

Upfront MIP (financeable) + annual MIP (monthly)
<10% down: MIP for the life of the loan
≥10% down: MIP ends after 11 years
No HPA rights — refinance is the exit

VA and USDA structures

VA: no monthly insurance at all — a one-time funding fee (varies by down payment and prior use; financeable; waived for borrowers receiving VA disability compensation) funds the guaranty. USDA: an upfront guarantee fee plus a small annual fee paid monthly — cheaper than FHA's annual MIP but, like it, structured for the loan's duration. Comparing programs for a borrower is largely comparing these insurance streams against PMI's cancellability.

Worked example

A borrower bought at $300,000 with 5% down conventional three years ago; the balance is now $246,000 and she has never missed a payment. Her sister has an FHA loan from the same year with 3.5% down. Both ask: 'When does my insurance stop?'

Conventional: original value $300,000 — the 80% request threshold is $240,000, the 78% automatic line is $234,000. At $246,000 she can't demand cancellation yet, but she may REQUEST it based on CURRENT value if appreciation puts her at 80% of today's value (lender-ordered appraisal, seasoning rules) — otherwise, pay down $6,000 more and request at $240,000, or wait for automatic termination at $234,000. The sister: FHA with under 10% down means annual MIP for the LIFE of the loan — no threshold ever ends it; her exit is refinancing into conventional once her equity clears 20%, killing MIP and avoiding new PMI in one move. Same year, same neighborhood — opposite insurance destinies.

Common exam pitfalls

Applying the 80/78 rules to FHA loans.

HPA covers PMI on conventional loans only. FHA MIP follows its own duration rules — life-of-loan under 10% down.

Confusing who PMI protects.

The borrower pays; the LENDER is the insured party against default loss.

Quoting 78% off the current appraisal.

The statutory triggers run off ORIGINAL value (purchase price/appraisal at closing); current-value cancellations are lender-policy requests.

80 ask, 78 automatic — but FHA under ten percent down is 'til death or refi do you part.

Recap

PMI: conventional <20% down; borrower pays, lender protected
HPA: request at 80% original-value LTV; automatic at 78% current-status; midpoint backstop
FHA: upfront + annual MIP; life-of-loan under 10% down, 11 years at 10%+
FHA exit = refinance; HPA doesn't apply
VA: funding fee once, no monthly MI, disability waiver
USDA: upfront guarantee fee + small annual fee